Supply and Demand Keeping M&A Market Active
In the first two quarters of 2018, we saw continued high levels of merger and acquisition (M&A) activity. There were 252 announced deals through June 30, 2018.
Those deals were spread over a vast universe of buyers – 96 different buyers to be exact. There were 62 buyers that reported only one deal in the period. This continues the trend we have seen over the last several years where buyers continue to flock to the industry, given the attractiveness of the strong profit margins and cash flow and generally high client retention rates in insurance brokerage firms.
The top five buyers in 2018, year-to-date (YTD) June 30, 2018, were all private equity sponsored (PE) companies. Combined, these five firms completed 33 percent of the announced transactions.
Alera Group Inc. was the top buyer, with 18 announced transactions. Alera was new on the scene on Jan. 1, 2017, and has quickly become a voracious acquirer. The firm’s PE sponsor is Genstar Capital LLC.
Acrisure LLC was the second most active acquirer with 17 announced deals. Acrisure is privately owned by its management group (majority of ownership) and also has PE backing by ABRY Partners LLC, VSS Fund Management LLC, and Genstar Capital LLC.
The third most active acquirer, year-to-date, was AssuredPartners Inc., PE-backed by Apax Partners LLP. AssuredPartners closed and announced 16 deals between January and June 2018.
BroadStreet Partners Inc. closed and announced 16 deals as well in the first six months of 2018, coming in tied for third with AssuredPartners. BroadStreet is backed by Ontario Teachers’ Pension Plan, and Century Equity Partners, for a somewhat unique investor structure (as the pension plan is a longer-term investor than traditional PE).
Hub International Limited was the fifth most active acquirer so far in 2018, with 15 announced transactions through June 30. Hub’s PE investor is Hellman & Friedman LLC.
The next five most active acquirers were a mix of public and private companies.
Arthur J. Gallagher & Co., a publicly traded company, announced 14 transactions through June.
NFP Corp., PE-backed by Madison Dearborn Partners LLC and HPS Investment Partners LLC, announced 12 transactions.
Brown & Brown Inc. (publicly traded) and Seeman Holtz Property & Casualty Inc. (backed by investor Hudson Structured Capital Management) each reported six transactions closed year to date through June 30.
Integrity Marketing Group LLC, also private equity backed (by HGGC, LLC), announced five transactions closed through June.
The top 10 acquirers, combined, accounted for nearly 50 percent of the announced transactions through June.
Private Equity Dominates
We are seeing that the buyer pool continues to be dominated by PE-backed buyers. Some 54 percent of announced deals through June 30, 2018, YTD were completed by PE sponsored firms, compared with 52 percent for the same time period in 2017.
The next largest category of buyers is independently owned brokers, which completed 25 percent of the announced deals through YTD June 30, 2018, compared with 28 percent for the same time period in 2017. YTD June 30, 2018, there were nearly 50 independent brokers making and announcing acquisitions.
The publicly traded brokers comprised 9 percent of deal activity through June 2018, compared to 8 percent for the same period in 2017.
Banks and others accounted for approximately 12 percent of the deal count through YTD June 30, 2018.
The “other” category includes insurance companies, private equity groups, specialty lenders, and insurtech.
In terms of geography, deal activity was concentrated in California, Texas, Massachusetts, New York and New Jersey. These five seller states comprised nearly half of the deal activity through June.
The majority of selling firms continue to be property and casualty (P/C) brokers. In 52 percent of the announced transactions through June 2018, the selling firm was a P/C firm. In roughly 25 percent of deals, the seller was an employee benefit and consulting (EB) firm and 23 percent were multi-line firms (brokers that write both P/C and EB).
Those figures compare with the following 2017 figures for the same time period: 53 percent of selling firms were P/C firms, only 18 percent were EB, and 29 percent were multi-line.
So, through YTD June 30,2018, there has been a pro rata uptick in the share of selling firms that were EB only.
Deal activity remains at a high level compared with longer term historical levels. We continue to see a steady stream of owners looking to sell well-performing insurance operations, and that combined with a steady influx of new buyers, as well as proven acquirers, continues to make for an active M&A market in the insurance distribution space.