Insurance Agency M&As Jumped 30% in 2021: OPTIS

There were 1,034 announced insurance agency mergers and acquisitions in 2021, up 30% from 795 reported in 2020, according to agency consultancy OPTIS Partners.

Also, the 384 deals during the fourth quarter of 2021 marked a 26% increase over the same period in 2020, which was a 68% increase over the same quarter in 2019. This was 32% more than the 290 transactions reported for the third quarter of 2021, as sellers once again looked to avoid a potential tax increase.

Investors flush with capital continue to meet an increasing supply of business owners looking to take advantage of all-time high valuations while capital-gains tax rates are low, the firm said. Many sellers are aging owners. according to the authors.

There were deals involving large agencies with $30 million or more in revenue.

“If 2020 was a boom year for mergers and acquisitions, 2021 was a virtual explosion,” said Steve Germundson, partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “The fourth quarter rush to close deals by year-end clearly taxed the sellers’ deal teams, legal counsel, and due-diligence providers. We expect a bit of a first-quarter respite before the cycle picks up again.”

OPTIS Partners data covers U.S. and Canadian agencies selling primarily property/casualty insurance, agencies selling both P/C and employee benefits, and those selling only employee benefits. The report tracks activity by four buyer and seller types: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and all others. Sellers are classified as property/casualty brokers, property/casualty and employee benefits brokers, employee benefits brokers, and all others.

Top Buyers

Acrisure continues to lead all buyers with 122 transactions in 2021, 17% higher than their five-year average.

For the first time in many years, another buyer competed for the top spot. PCF Insurance completed 99 transactions (up from 36 in 2020). Other top buyers were Hub International with 61 acquisitions (down from 65 in 2020) and High Street Partners with 56 (up from 9 in 2020). Both PCF and High Street recapitalized in 2021. Assured Partners with 51 deals (up from 38 in 2020) rounded out the top five.

Other buyers considered “most active” included World Insurance Associates with 49 (up from 42) and both Alera Group and BroadStreet Partners with 45 (up from 18 down from 58, respectively). Relation Insurance (33) and Patriot Growth (31) were the ninth and tenth most active buyers last year.

Several other historically active buyers saw their transaction count drop somewhat in 2021, including Hub and Broadstreet, and OneDigital at 20 compared to 32 in 2020.

Private Equity

The private equity-backed/hybrid group of buyers continues to dominate the volume of transactions at approximately 76% of the total. Acquisitions completed by privately held firms and publicly traded companies slid somewhat to 15% and 6% of all deals, respectively. The most active privately-owned buyers in 2021 were Heffernan Insurance Brokers at 11 (up from 8 in 2020) and Liberty Company Insurance Brokers at 10 (up from 1).

P/C Agencies

Property/casualty agency sellers accounted for 547 of the total 1,034 transactions (53%), similar to their percentage of the totals in recent years.

“The industry is in unprecedented times. We’re coming off a six-quarter stretch that heretofore seemed unthinkable,” said Tim Cunningham, managing partner of OPTIS Partners.

“The brokerage industry continues to prove resilient to economic challenges ranging from terrorism to economic meltdowns and even COVID. Investors love this resiliency and predictability. While private-equity investors will likely be able to absorb increases in loan interest rates, we will be paying attention to their leverage. This has gone under-noticed for a couple of years but may become a hot topic if rates increase significantly.”