2016 Insurance M&A rated second highest in history

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Insurance mergers and acquisitions reached the second highest point ever in 2016, just a few shy of the top slot in 2015, a new report by OPTIS Partners reveals.

OPTIS database recorded 449 deals in the United States and Canada for 2016, a slight dip from the all-time record of 456 in 2015. “It was a seller’s market last year, and it will probably remain one in 2017,” says Timothy J. Cunningham, managing director of OPTIS.

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The report covers transactions of agencies selling primarily property and casualty insurance, but also includes those selling both P&C and employee benefits, as well as strictly employee benefit agencies.

Private-equity backed agencies were 2016’s biggest buyers, making 237 purchases, 53% of the total. The top two were Acrisure, with 63 deals, and HUB International with 45 deals.

Privately owned insurance agencies came in second, buying 124 agencies. They were followed by public brokers with 41 deals, banks with 25, and carriers and agencies marked under “other” with 22 deals.

While employee benefit agencies rose to become the second-most popular category — accounting for 20% of sales, up from 17% in 2015 — P&C agencies continued to dominate the list, with 54% of all sales.

Deals for agencies selling both P&C and employee benefits held steady at 17% of transactions. The “other” category remained at the bottom with 9%.

Key takeaways
The statistics pointed to these key lessons, according to Daniel P. Menzer, partner at OPTIS:

  • Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors.
  • Buyers, in particular smaller and less capitalized firms, need to be careful not to get carried away in pricing competition for a seller’s business, only to find out later they can’t afford to pay for it.
  • Firms need to be steadfast in setting realistic valuations for internal transactions versus getting overly swayed by actual and anecdotal pricing stories of other agency transactions.
  • For the agency owners waiting for the “right time to sell” before jumping on the bandwagon, now is the right time, Menzer says.

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Additionally, Cunningham says the actual number of sales was greater than the 449 reported, as many buyers and sellers do not report transactions, and some acquirers do not report small transactions.

“The OPTIS database tracks a consistent pool of the most active acquirers, including other announced deals, and is, therefore, a reasonably accurate indication of deal activity in the sector,” Cunningham says.

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