Insurance agency mergers and acquisitions. Agency valuations continue to creep upwards, pushing revenue and EBITDA multiples to levels seldom if ever seen before. (Photo: Shutterstock)

Mergers and acquisitions (M&A) of insurance agents and brokers last year broke several records in 2018, according to Optis Partners’ annual report.

The Optis database logged a record 626 deals in the United States and Canada in 2018, including 330 transactions in the second half of the year and 148 transactions during the fourth quarter.

There were 611 M&A deals in 2017, previously the most active year.

agency mergers & acquisitions Total agency mergers and acquisitions by year, U.S. and Canada, 2008-2018. (Source: Optis Partners)

Expectations exceeded

“The M&A market for insurance agents and brokers continues to surprise and exceed expectations,” said Timothy J. Cunningham, managing director of Optis, an investment banking and financial consulting firm specializing in the insurance industry. “There are no signs of anything changing in the near term either.”

The report covers firms selling primarily property & casualty insurance, both P&C and employee benefits, and employee benefits agencies.

Related: Taking the mystery out of insurance agency M&As

Private equity/hybrid buyers accounted for 424 transactions, representing 68 % of the total, compared with 383 transactions and 63% 2017.

“The concentration of private equity/hybrid buyers has grown steadily since we began tracking deals in 2008 when only 21% of the transactions involved private equity buyers,” he said.

Top 5 buyers

The top five buyers were:

  1. Acrisure (101 acquisitions).
  2. Hub International (59).
  3. AssuredPartners (37).
  4. Gallagher (36).
  5. Broadstreet Partners (34).

All were in in the private equity/hybrid category, except publicly owned Gallagher.

Privately owned firms completed 107 transactions in 2018, down from 137 acquisitions in 2017. This was the first decrease from this group since 2013.

Total transactions by buyer type.

P&C agencies were top sellers

By seller type, property & casualty-focused agencies dominated the list. They accounted for 345 of the 2018 transactions, 55% of the total. Employee benefits brokers accounted for 146 transactions, 23% of the total, but were down from the 174 recorded in 2017.

There were 142 unique buyers in 2018, down from 177 in 2017 and the lowest total since 2014. At the same time, the top 10 buyers in 2018 accounted for 62% of the number of transactions compared to only 56% in 2017 and 52% in 2016.

Some key takeaways from this year’s results include the following, according to Daniel P. Menzer, Optis partner:

  • Buyers continue to find attractive agencies to acquire.
  • Agency valuations continue to creep upwards, pushing revenue and EBITDA multiples to levels seldom if ever seen before.
  • Internal perpetuation is a challenge because of the increasing gap between the value third-party buyers are willing to pay and internal transaction values. Many owners find these values very compelling.
  • Equity and debt capital remain plentiful to fund private equity/hybrid buyers.
  • As we’ve said in the past and strive to reinforce every day with our clients:
    • If you’re a buyer, pay attention to cash flow and be careful not to overpay.
    • If you’re a seller, identify the best cultural and operational fit. Take advantage of strong pricing before things change.
    • If you’re neither, ignore all the hype and run your business like a business and strive for improvement every day.

The Optis database tracks a consistent pool of the most active acquirers and other announced transactions, and is, therefore, a reasonably accurate indication of deal activity in the sector.

“The actual number of agency acquisitions was far greater than the number reported, as many buyers and sellers do not report transactions, and some acquirers do not report small transactions,” Cunningham said.

Related:

2018 to become a major year for insurance agency M&As

Megadeals push global insurance M&A to highest levels since financial crisis

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