Private Equity Again Drove Agency M&As in U.S., Canada in 2018: OPTIS

Mergers and acquisitions of insurance agents and brokers last year broke several records in 2018, with private equity/hybrid buyers accounting for 68 percent of the total.

According to consultants at OPTIS Partners’ annual report, there were a record 626 deals in the U.S. and Canada in 2018, including 330 transactions in the second half of the year and 148 transactions during the fourth quarter. There were 611 M&A deals in 2017, previously the most active year.

Private equity firms were involved in 424 transactions, representing 68 percent of the total, compared with 383 transactions and 63 percent in 2017.

“The M&A market for insurance agents and brokers continues to surprise and exceed expectations,” said Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry. “There are no signs of anything changing in the near term either.”

He said the concentration of PE/hybrid buyers has grown steadily since OPTIS began tracking deals in 2008 when only 21 percent of the transactions involved private equity buyers.

The report covers firms selling primarily property/casualty insurance, both P&C and employee benefits, and employee benefits agencies.

The top five buyers in 2018 were Acrisure (101 acquisitions), Hub International (59), AssuredPartners (37), Gallagher (36) and Broadstreet Partners (34). All were in in the PE/hybrid category except publicly-owned Gallagher.

Privately owned firms completed 107 transactions in 2018, down from 137 acquisitions in 2017. This was the first decrease from this group since 2013.

By seller type, property/casualty-focused agencies dominated the list. They accounted for 345 of the 2018 transactions, 55 percent of the total. Employee benefits brokers accounted for 146 transactions, 23 percent of the total, but were down from the 174 recorded in 2017

There were 142 unique buyers in 2018, down from 177 in 2017 and the lowest total since 2014. At the same time, the top 10 buyers in 2018 accounted for 62 percent of the number of transactions compared to only 56 percent in 2017 and 52 percent in 2016.

According to Daniel P. Menzer, OPTIS partner, buyers continue to find attractive agencies to acquire and agency valuations continue to creep upwards, pushing revenue and EBITDA multiples to levels seldom if ever seen before.

“Internal perpetuation is a challenge because of the increasing gap between the value third-party buyers are willing to pay and internal transaction values. Many owners find these values very compelling,” Menzer said.

The OPTIS database tracks a consistent pool of the most active acquirers and other announced transactions. “The actual number of agency acquisitions was far greater than the number reported, as many buyers and sellers do not report transactions, and some acquirers do not report small transactions,” Cunningham said.