By John Hilton February 21, 2019
Insurance
agencies and brokerages are hot properties and 2018 merger-and-acquisition
activity was the busiest in at least a decade, OPTIS Partners reported.
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. Based in
Chicago, OPTIS began tracking insurance agency M&A activity in 2008.
“The
private equity world has discovered the insurance distribution business and
they like the business because its cash flow is reasonably predictable,” said
Timothy J. Cunningham, managing director of OPTIS, an investment banking and
financial consulting firm specializing in the insurance industry.
Private
equity/hybrid buyers accounted for 424 transactions, representing 68 percent of
the total, compared with 383 transactions and 63 percent in 2017. In 2008,
private equity/hybrid buyers accounted for just 21 percent of transactions,
Cunningham noted.
The top
five buyers were Acrisure (101 acquisitions), Hub International (59),
AssuredPartners (37), Gallagher (36) and Broadstreet Partners (34). All were in
in the PE/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 in this group since 2013.
P/C
Getting The Action
By
seller type, property-and-casualty-focused agencies dominated the list. They
accounted for 345 of the 2018 transactions, 55 percent of the total. Employee
benefits brokers accounted for 146 transactions, 23 percent 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
percent of the number of transactions compared to only 56 percent in 2017 and
52 percent in 2016.
P/C
shops are very attractive for several reasons, Cunningham said.
“It’s
never going to be a high, high margin business, but it’s going to be a decent
medium margin business,” he explained. “And it’s reasonably predictable because
of renewals. And it doesn’t require any capital expenditures.”
As it
relates to succession planning, the hot market for agencies is giving owners
nearing retirement a lucrative option. Likewise, it is serving as a financial
curveball for those who have internal succession agreements in place,
Cunningham said.
“What
happens is they see the differential in the value that they can derive from an
internal transaction as opposed to an external sale and the delta there is
growing every day,” he said.
Insurance
agencies are likely to remain highly sought after for the immediate future,
Cunningham said, barring a major geopolitical event or an economic collapse.
“Probably
if you had asked me a couple years ago I would have said, ‘I don’t see how it
can continue,’” Cunningham said. “But I’ve stopped saying that.”
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.
InsuranceNewsNet
Senior Editor John Hilton has covered business and other beats in more than 20
years of daily journalism. John may be reached at john.hilton@innfeedback.com.
Follow him on Twitter @INNJohnH.
© Entire contents copyright 2018 by
InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be
reprinted without the expressed written consent from InsuranceNewsNet.com.
No comments:
Post a Comment