Specialty M&A deals set new record in 2022
Specialty distributors consolidated over four times more than retail brokers did in 2022, according to a report from MarshBerry.
Specialty distributors consolidated over four times more than retail brokers did last year, according to MarshBerry’s Q4 2022 Specialty Distribution Market Update. In fact, specialty firms recorded 157 transactions in 2022, which set a new record for the number of specialty M&A deals.
This number has steadily ticked upward over the last few years from 123 deals in 2020 to 153 in 2021. Combined with the transactions in 2022, the report shows a 2% increase in specialty deals year-over-year with a five-year CAGR of 17%.
The main driver of transactions in 2022 continued to be private capital-backed organizations. Since 2018 – when privately backed buyers completed only 27 transactions – these deals have increased 285%, with 104 completed in 2022. Independent broker deals, however, dipped 38% from 2021 to 2022, which MarshBerry attributes to “historically high valuations outpricing brokers who do not have sufficient capital.”
The excess and surplus (E&S) sector grew more than 25% in 2021 and 2022, and the report predicts growth will continue in 2023 with an expected increase of 10% to 15% or more. Increasingly expensive property claims from natural disasters and climate events over the last several years have driven carriers and consumers alike toward E&S lines of business, which has driven sector growth.
As far as what else is ahead for the specialty market in 2023, MarshBerry’s report predicts: “Even with rising interest rates and rumors of tightening capital supply, buyers still appear poised for aggressive dealmaking in 2023 within the specialty distribution segment, thanks to many buyers still having plenty of dry powder at their disposal. While there is risk of market conditions deteriorating more than expected, thus further impacting the availability of capital (debt and equity), for the time being there continues to be tailwinds driving demand for specialty distributors.”