Q3 2022 report: Agency M&A saw year-over-year decline
Commercial lines saw more growth in Q3 2022 than personal lines, however, personal lines still saw its highest quarterly organic growth rate since the survey began.
Agents and brokers saw their first drop in organic growth in almost two years in Q3 2022, according to the Reagan Quarterly Market Update, but growth still sat at 9.5%, well above the 4.7% growth seen in Q3 2020. Q3 2022 also ranked as the quarter with the second-highest reported organic growth since the Growth and Profitability Survey began in 2008. The highest organic growth in that time period was recorded in Q2 2022 (10.2%).
Commercial lines saw more growth (11.8%) in Q3 2022 than personal lines, however personal lines saw its highest quarterly organic growth rate (5.9%) since the survey began. The report attributes this increased personal lines growth to brokers working to round out accounts and create stronger relationships with clients.
Merger and acquisition (M&A) transactions saw a year-over-year decline, with 369 in 2022 (through September 30) compared to 631 in 2021. However, it is important to note 2021 saw record-level M&A activity, which may have contributed to the sharp drop.
Private equity-backed brokers represented more than half of reported M&A transactions in the first three quarters of 2022. The report hypothesizes that since the cost of debt jumps every time interest rates increase, the percentage of these transactions backed by private equity could see a decline.
Interest rates have risen significantly over the last year, from 0.08% at the end of 2021 to 3.08% at the end of Q3 2022. Despite inflation and economic volatility, Reagan reports valuations of privately held agencies remain at all-time highs, with the typical guaranteed valuation multiple increasing over 100% from 2010.