The first two quarters of 2016 have seen numerous mergers and acquisitions, so much so that the timeframe was ranked second-most-active in a six-month period since OPTIS Partners began tracking M&A transactions in2008.
“Buyers and sellers continued to feed their hearty appetites for deals and push up the M&A activity trend line,” says Timothy J. Cunningham, managing director of OPTIS.
At least 232 deals were announced over the six-month period, one fewer than the 233 done in the first half of 2015, according to OPTIS Partners’ M&A database. The database monitors primarily agencies selling employee benefits, agencies selling both P&C and employee benefits, and agencies selling P&C insurance between U.S. and Canadian markets.
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Cunningham says activity has climbed steadily over the past four years for agency M&A, regardless of the spike in 2012 and related drop in early 2013 because of tax law changes.
“We anticipate the recent strong industry consolidation trend will continue for the near term as acquisitions are an important growth strategy for many firms, especially those backed by private-equity capital,” Cunningham says.
Because there is so much buyer interest, prices continue to climb. Daniel P. Menzer, CPA, partner with OPTIS, says the time to sell is now.
Reaching a peak
“If you’re an agency owner thinking about the best time to put your agency in play, consider taking action sooner than later,” Menzer says. “Interest from buyers is high and agency valuations are near their peak.”
However, Menzer adds that there could be ramifications for an agency that does not do their homework before making a purchase.
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“A premium price paid for acquisition can have significant adverse implications on the long-term viability of your agency,” Menzer says. “If the agency you buy does not perform up to snuff and you do not have the capital base to absorb the shortfalls, you can get in a lot of trouble.”
The buyers have been broken down into five categories, according to the OPTIS report, dividing them into:
- Private-equity backed brokers
- Privately held brokers
- Publicly held brokers
- Banks
- All others
Private-equity backed buyers continue to lead the charge with 114 transactions. Privately held brokers were the second-most active group of buyers with 68 deals — or 29% of the total, up from 24% during the year-earlier period. Publicly-traded brokers announced 24 deals, down three deals from 2015’s first-half count.
Banks announced 15 transactions, three more deals than during 2015’s first. Insurance companies and other buyers also were less active this year compared to the first six months of 2015 and remain relatively inactive.
Among the P&C and benefit brokers 40 deals were made, while only-employee benefits agency sales held at 43.
