OneDigital completes largest acquisition in company history
The insurance brokerage M&A movement continues to grow with OneDigital Health and Benefits’ acquisition of Northwestern Benefit — the largest acquisition in company history, OneDigital said Wednesday.
The Atlanta-based benefits brokerage did not disclose the terms of the transaction, although it says the addition of Northwestern Benefit would balloon the company to nearly 50,000 employer clients and more than 1,600 employees.
This is OneDigital’s fifth acquisition this year, and the brokerage has at least 10 more planned to close over the next roughly 90 days, Mike Sullivan, co-founder and chief growth officer of OneDigital, told Employee Benefit Adviser.
“Our industry is really going through a significant amount of change right now. It’s kind of the alchemy of the insurance industry,” he says. “There’s lots of capital on the sidelines looking to be deployed; it’s very inexpensive for firms like us to borrow. You have a relatively fragmented space, lots of smaller agencies that compete in local markets where more significant entities like us are trying to localize our business.”
See also: Insurance brokerage M&A picks up speed
OneDigital acquired Illinois-based Veritas Risk Services in February, and Massachusetts-based BCA Benefits Group in January. The company completed 28 acquisitions last year alone, which grew the brokerage to more than $400 million in annual revenue. Sullivan tells EBA that OneDigital is involved in more than 100 ongoing discussions regarding potential transactions in an effort to increase local business.
“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.”
Insurance M&A reached its highest point in 2018, with 626 deals, surpassing 2017’s high of 611, according to a report from investment banking and financial consulting firm Optis Partners. Timothy Cunningham, managing director of Optis, told EBA in January that private equity tends to like the insurance space because cash flows and margins are reasonably predictable — a potential reason for why so much M&A is happening.
“I don’t see any reason for it slowing down,” he says. “I think valuations are their peak; they’ve inched up every quarter.”
So far, industry M&A has continued to pick up speed. On Monday, Marsh & McLennan Companies, of which consulting firm Mercer is a subsidiary, acquired brokerage Jardine Lloyd Thompson Group for $5.6 billion in fully diluted equity value. The move brings more than 10,000 JLT employees to Marsh & McLennan, the company says in a statement.
Sullivan says he is not surprised by the amount of recent brokerage activity. The insurance industry is a relatively simple business with predictable financials, which makes it easy for private equity to understand, he says. This, coupled with the fragmentation in the space, could be a reason why so much M&A is going on, he adds.
“I don’t think there’s anything tremendously special in terms of what’s going on, other than it’s a very predictable, understandable business,” Sullivan says.
But Sullivan does caution that with so much M&A, there could be a clash between two brokerages when transactions occur if owners don’t spend enough time assessing company culture. When you are working through an intermediary, like a banker, to source a deal, it can be difficult to get a feel for the atmosphere at a company.
“I don’t think agency owners spend enough time on the process and what’s the best way to find the right home for them,” he says. “It’s something I kind of wish they knew more about.”