2012 was a record-breaking year for the number of announced insurance brokerage mergers and acquisitions, principally due to the higher capital gains tax that became effective in 2013. It was a year in transition, culminating with active third and fourth quarters. However, first-quarter 2014 was the most active first quarter for transactions in the last 10 years.
A telling trend is the rise and now dominance of the private equity-backed buyer group. In 2013, more announced deals were consummated by the private equity-backed segment than the heretofore most active private group and the relatively active public broker group. Not only are such large private equity-backed companies as Hub and USI very active, but Assured Partners also emerged into this category. Three of the most active acquirers in 2013 and in the last three years were private equity-backed buyers. Other smaller but active private equity-funded buyers included Acrisure, BroadStreet Partners and The Hilb Group.
So what should we expect to see on the M&A front for the rest of this year and the future? Based on the recent past, I believe acquisitions will remain robust for a number of years to come.
We have a strong and well-capitalized buy group. Private equity-backed firms will continue to hunt for deals, as one of the foundations of their business model is growth through acquisition. The public broker group also will remain active acquirers. Recent activity suggests their acquisitions have become more strategic, with a focus on larger targets. But if history is any guide, the public-broker sector will continue to be a major player on the M&A front.
The sell community also will be active. Some will be strategic, looking for alignment with a larger player; others will be tactical, seeking transactions to capitalize on their value. However, the great majority during the next 10 to 15 years will be driven by necessity due to a convergence of two critical forces: the retirement of baby boomer agency principals age 55 and older, combined with the fact that many of those firms have not built the people and capital resources to perpetuate internally.
For those who are acquisitive, I predict happy hunting, as inventory should be deep. For those who need an exit, it may be prudent to be proactive and sell ahead of the curve, as the buy group may turn selective as more acquisition targets become plentiful.
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