2017 is on pace to be a record-setting year for insurance agency merger and acquisition (M&A) activity, according to OPTIS Partners' recently released third quarter report.
So far in the first nine months of 2017, 457 total transactions have been reported, compared to 350 transactions in total for 2016.
OPTIS asserts the market for insurance agencies remains "a seller's market."
"There's no end in sight to the upward trend. The appetite of buyers is undiminished, as is the supply of agencies for sale," said Timothy J. Cunningham, managing director of OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.
"It's absolutely certain 2017 will be another record-setting year for M&A activity," Cunningham added. "The activity is fueled by aggressive buyer valuations, in particular from private-equity backed buyers who are flush with cash. And there's a plentiful supply of aging agency principals who need to complete their exit strategies."
OPTIS Partners' proprietary M&A database covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, and those selling only employee benefits.
Their third quarter report places buyers among five groups: private-equity (PE) backed brokers, privately held brokers, publicly held brokers, banks, and all others in the fifth and final category. The following graphs report each group's transactions from buyers' and sellers' for 2015-2017, including the Trailing 12-Months (TTM) totals through September.
As shown in the graph below (Transactions by Buyer Ownership), privately owned brokers accounted for the most transactions with 65 deals. Private-equity backed brokers bought 50 agencies, while publicly owned brokerages bought 10 firms, and banks made six acquisitions.
The report makes an important note of the change in classification of Acrisure from a PE-backed to a privately owned firm in November 2016, which OPTIS says has caused a significant swing in the totals by buyer type. If not for this change, the PE-backed transaction count for the quarter would have been 73 deals compared to only 42 from the privately owned buyers.
The chart above looks at transactions by seller type from 2015 through the first three quarters of 2017. The data here shows that property & casualty agencies continue to be most popular, accounting for 69 deals in the third quarter. Sales of employee benefits brokers have picked up in 2017, totaling 34. Of agencies selling both P&C and benefits, 15 were sold, as well as 15 in the "other" category.
"Sellers have a great opportunity today," said Daniel P. Menzer, CPA, partner with OPTIS Partners. "If you are a potential seller, consider acting sooner than later while the irons are hot and the pricing is favorable. If you're a buyer, do your homework on the potential seller. Fully evaluate their risk and growth potential. Look at the financials in depth and consider qualitative factors. Overpaying can be deadly."
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Danielle Ling
Danielle Ling is an experienced video journalist and business reporter. As associate editor, Danielle manages all multimedia and reports on industry news and risk-related coverage, managing all weather-related content. A University of Maryland and Philip Merrill College of Journalism alum, Danielle previously served as a video journalist for Verizon FiOS 1 News NJ, Push Pause. Connect with Danielle on LinkedIn or email her at [email protected].
