Insurance agency mergers and acquisitions reached an all-time high in the first quarter of 2016, with 109 reported transactions in the first three months of the year, according to Optis Partners’ M&A database.
This quarter slightly outpaced that of 2015, which saw 107 deals reported in the first quarter. Optis reported a record 455 M&A transactions in 2015.
“M&A activity seems to have unstoppable momentum,” says Timothy J. Cunningham, managing director of Optis, an investment banking and financial consulting firm specializing in the insurance industry.
And there are no signs this momentum will subside, according to Jay Brown, CPA and vice president of corporate development at USI Insurance Services.
“EB firms are looking for more resources,” explains Brown of the Valhalla, New York-based firm. “The complexity of the EB market in particular is changing so you have people looking to make investments in compliance attorneys, underwriters in analytics, healthcare and HR consultants."
So far in 2016, Private-equity backed brokers led the pack with 50 transactions, a 25% increase over the same period last year. The top buyers were Acrisure (13 transactions), AssuredPartners (11 transactions) and Hub International (8 transactions).
Privately held brokers followed in second, with 34 deals, down from 41 in Q1 2015. Publicly traded brokers completed 10 deals, down from 12. Bank acquisitions remained unchanged at seven. Transactions by all others numbered eight, up one.
Agency acquisitions continue to focus on P&C shops (63 announced transactions) and P&C/benefits brokers (21 deals). There were 10 employee benefit agency sales.
“Firms are at a cross roads,” says Brown. “Do they partner with a third party vendor? Or do they invest in themselves and tap their own capitol to build it? Or do they follow a third opportunity and find someone like USI that has those resources in house?"
And from a buyer’s perspective, Brown believes there’s a stronger appetite to acquire new partners now that uncertainties surrounding health care reform have resolved.
What does an agency like USI look for when absorbing new companies? Brown says partnership is the main criterion. One of their most recent acquisitions is with Hanratty & Associates, a second-generation employee benefit consulting and brokerage firm. The owner decided to partner with USI because he "saw opportunities in the marketplace that he didn’t want to accede to the competition. And he wanted to continue to build his client base upstream," explains Brown.
This may be an impetus for many small and mid-sized brokerages and advisory firms to join larger agencies and brokers. However, Brown believes there will always be a market share for small shops because employers’ needs will never be one size fits all.
Several active buyers from prior years did not announce any transactions during the first quarter, including NFP, Integro, TowneBank, Eagle American Insurance, and J. Smith Lanier. However, nearly 30 firms that announced a transaction in Q1 had not announced any prior deals.
The data in the Optis study covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, and those selling only employee benefits. The actual number of sales was likely greater than reported, however the pacing provides an accurate barometer of activity, according to the firm.
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