In 2014, there were 357 announced agent-broker M&A transactions, an increase of more than 30% from the previous year and more than 10% higher than in 2012. Notwithstanding an extremely vibrant buy-side community, is it logical to assume that sellers are primarily motivated to capitalize on the value of one of their portfolio's largest assets and take their proverbial chips off the table at top-of-the-market values?
The answer is a quiet and subtle no. Lost in all of the hoopla over the extremely active M&A environment is the fact that the great majority of sell-side transactions occur due to many firms' inability to perpetuate internally.
Frankly, the demographics are not good. The agency population is aging. Not only are the equity owners reaching that magical exit-retirement age and selling to acquirers, so too are a significant number of the other production, management and support staff reaching their retirement ages. Baby boomers abound, and the industry has done a woefully inadequate job of creating the environment to attract millennials and Generation X-ers. And that was during the down period of the economy post 2008, when many of those millennials and Gen X-ers struggled to find gainful employment on a meaningful career path.
This talent drain will come as death by inches. One by one, key staff with multiple years of knowledge and experience will exit to their retirement villages, but many firms aren't realizing this crisis until it is too late.
The industry must marshal its resources to craft and deliver the message of what many of us know, live and embrace every day. A career in the insurance agency-brokerage world is second to none. It is rewarding personally and financially, and fun.
Although segments of the business will change due to the impact of the Web and e-commerce, I do not believe this emerging technology will have a major impact and lead to the demise of the industry, except possibly in some commodity product lines.
Helping businesses, institutions and individuals protect and preserve their assets brings a great deal of satisfaction. And the industry has enough depth and complexity to have a place for many talented individuals: sales, client service, management and technical. It has its flaws and it is not perfect, but the world of commerce and everyday life could not function without it.
ASK THE EXPERT
Q: What is the near forecast for agent-broker M&A transactions?
Cunningham: The active climate of the last couple years should continue for a number of years into the future. It is a bit of a “perfect storm,” so to speak, but in a good way, especially if you are a potential seller. There is a growing inventory of baby boomer sellers needing an exit with an extremely well capitalized buy-side group ready, willing and able to make acquisitions. The relatively recent and continuing entry of early stage private-equity-backed acquirers is a game-changer. And that is in addition to the usual long standing active acquirers. Consequently, I would not be surprised to see an increase in the number of deals year-over-year for the next three to five years, and likely for an additional like period thereafter.
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