The employee benefit industry has seen almost 150 mergers and acquisitions since the first quarter of 2017 — 235 if insurance agencies that handle both benefits and P&C are included — according to the latest report from investment banking and financial consulting firm OPTIS Partners.
“There is no end in sight to the upward trend,” says Timothy J. Cunningham, managing director of OPTIS Partners. “The appetite of buyers is undiminished, as is the supply of agencies for sale.”
OPTIS Partners’ proprietary M&A database covers U.S. and Canadian agencies selling only employee benefits, agencies selling employee benefits and P&C as well as agencies primarily selling P&C insurance.
As businesses end the third quarter, the number of mergers and acquisitions within the employee benefit space has nearly surpassed 2015 and 2016 M&As combined, which totaled 168 deals.
“It’s absolutely certain 2017 will be another record-setting year for M&A activity,” Cunningham says. “The activity is fueled by aggressive buyer valuations, in particular from private-equity backed buyers who are flush with cash, and there’s a plentiful supply of aging agency principals who need to complete their exit strategies.”
‘A great opportunity’
The report breaks down buyers into five groups: private-equity backed brokers, privately held brokers, publicly held brokers, banks and all others. Privately owned brokers took first place in the third quarter, accounting for 65 deals.
Private-equity backed brokers bought 50 agencies, while publicly owned brokerages bought 10 firms, and banks made six acquisitions. However, the change in classification of Acrisure from a PE-backed to a privately owned firm in November 2016 has caused a significant swing in the totals by buyer type.
If not for this change, the PE backed transaction count for the quarter would have been 73 deals compared to only 42 from privately owned buyers.
“Sellers have a great opportunity today,” says Daniel P. Menzer, CPA, partner with OPTIS Partners. “If you are a potential seller, consider acting sooner than later while the irons are hot and the pricing is favorable.”
Menzer adds that those agencies that are looking to be potential buyers need to do their homework when determining whether a prospective company is worth the purchase.
“Fully evaluate their risk and growth potential,” he says. “Look at the financials in depth and consider qualitative factors. Overpaying can be deadly.”
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