Have agency buyers lost their minds? This is a question frequently asked by agency principals who are shocked to hear how high a price a buyer paid for a peer agency. How in the world, they wonder, could their mediocre competitor possibly be worth 2.0-times revenue?
The answer, as you might expect, is no, buyers haven't lost their minds. It is true that the value of agencies, expressed as a multiple of profits or revenue, is as high (and in many cases higher) than at any time in recent memory. But the buyers doing the vast majority of the deals are public brokers who are disciplined and are closely scrutinized by their investors.
So, what gives? If valuations are higher than ever yet buyers are retaining their financial discipline, where is the value coming from? After all, the commercial property-casualty market just entered its fourth year of soft pricing (except for property-catastrophe risks, of course)!
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