Insurance brokerage M&A soared to its highest number ever last year,
That’s according to Optis Partners
“I think we still see a lot of interest on the buy side and there still seems to be a fairly strong inventory of potential sellers,” Cunningham says.
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Leading the pack for Q1 is Patriot Growth Insurance Services with 18 acquisitions total. This is largely due to a transaction in January, when the company combined with 17 independent insurance agencies and the employee benefits brokerage TRUE Network Advisors. Patriot was followed by Acrisure (16), Hub (12), Gallagher (10) and Broadstreet Partners (10), Optis reports.
In the employee benefits space, Cunningham says OneDigital’s acquisition of Northwestern Benefit in early April, the largest in company history, is worth noting. The Atlanta-based brokerage said the acquisition would balloon the company to nearly 50,000 employer clients and more than 1,600 employees.
Mike Sullivan, co-founder and chief growth officer of OneDigital, told Employee Benefit Adviser, the company has at least 10 additional transactions planned to close over the next roughly 90 days.
“We’re all on the search for strong local teams that can help us weave ourselves into local communities,” Sullivan says. “It’s leading to a great deal of consolidation.”
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But what does all of this consolidation mean for smaller benefits brokerages? Well, compared to 10 years ago, there aren’t many around anymore, Cunningham says. There has been rapid consolidation among smaller benefits firms, which could be due to the high demand of Affordable Care Act requirements and the scale needed to administer benefits to employers, he says.
“The value added services that benefits brokers have to deliver, you need scale to do that,” he says.
For small independent firms owned by baby boomers nearing retirement, a sale serves as a potential exit strategy. “They need to monetize their exit, they have an asset so they’re going to sell it,” he says. Companies like Gallagher and USI Insurance Services could be looking to acquire brokerages that specialize in benefits, he says.
It is too soon to tell what the next three quarters will bring, but Cunningham says M&A activity is likely to remain steady. Private equity likes the insurance industry because cash flows and margins are reasonably predictable, which could be another reason why so much M&A is happening, he says.
“It’s been true for a number of years now,” Cunningham says “It’s a very robust marketplace.”
