The employee benefits arena saw plenty of business mergers despite modest organic growth in 2017.
Organic broker growth slowed down for the first half of 2017. Group benefits grew only 4.9% in Q2 2017 compared to 6.2% in Q2 2016, according to the latest market research firm Reagan Consulting.
Reagan Consulting found that the top quartile of employee benefits performers grew at 14.5% versus an industry median of just 4.9%. On the other hand, the bottom 34% of the agencies reported negative employee benefits growth in Q2 2017. The company does not monitor Q3 and data were not yet available for Q4.
“Employee benefits increasingly seem to be a winner-take-all marketplace. Those that are all-in — investing heavily in producers, resources and technology — are taking large chunks of market share from those that are simply dabblers,” according to Reagan Consulting.
Despite these modest growth numbers, 2017 was a notable year for mergers in the employee benefit space.
The year started with news that 24 independent employee benefit, P&C, risk management and wealth management firms across 15 states — with $158 million in annual revenues and 20,000-plus clients — joined to form Alera Group. The new company became the nation’s 14th largest private insurance firm and 7th largest private employee benefit firm, with more than 750 employees in 40 offices. Some of the 24 founders included Ardent Solutions, Centennial, HMK Insurance and Virtus Benefits.
In July, Alera said it grew organically at just over 10% in Q1 and it announced plans to grow to 40 acquisitions by the end of the year. That month, it acquired employee benefits firms AIC Denver on June 1 and Group Benefits of Memphis, Tenn. In November, it acquired HealthFirst of Berwyn, Penn., Somerset Capital Advisors of Berwyn, Penn., and Flagship Healthcare of Chicago.
‘No end in sight’
By November, the employee benefit industry had seen nearly 150 mergers and acquisitions since the first quarter of 2017, according to a report from OPTIS Partners. That number grew to 235 if insurance agencies that handle both benefits and P&C are included.
“There is no end in sight to the upward trend,” Timothy J. Cunningham, managing director of OPTIS Partners, said. “The appetite of buyers is undiminished, as is the supply of agencies for sale.”
In other M&A news, The Plan Sponsor Council of America joined with the American Retirement Association to offer its members expanded access to resources and educational services. PSCA is a Chicago-based trade group comprised of employee benefit plan sponsors, and The ARA is an Arlington, Va.-based non-profit professional organization with more than 20,000 members.
By far, the standout business deal of 2017 was announced earlier this month: CVS Health’s $69 billion bid for insurance giant Aetna would create a larger competitor for UnitedHealth Group Inc., which is the largest U.S. health insurer and has its own pharmacy benefits unit.
Despite this flurry of M&A activity, not all deals were successful.
In February, Aetna ended its $37 billion takeover bid of Humana Inc., after deciding not to appeal a ruling by a federal judge who blocked the health insurers’ merger on antitrust grounds. The companies mutually agreed to axe the deal, and Aetna agreed to pay Humana a $1 billion breakup fee.
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