The impact of the COVID-19 pandemic on insurance agency mergers and acquisitions activity was significant. Note the past tense nature of that first sentence because based on third-quarter M&A activity, the deal community appears to be saying “What COVID?” 

We saw a slowdown at the end of the first quarter and all through the second, but the third quarter returned to first-quarter 2020 and year-over-year levels. Buyers and sellers are more comfortable now with their understanding of the underlying economics of the industry in general. Nearly all parties are also much more comfortable with the remote process of getting deals done from initial buyer meetings through negotiations, diligence and closing.  

The total number of U.S. and Canadian property/casualty, benefits, managing general agent and third-party administrator transactions during the first three quarters of this year dropped only 7% to 466, down from 499 during the same period in 2019. On a quarterly basis, there were 170 transactions during third-quarter 2020, compared with 130 in the second quarter and 171 in the first. The number of deals done in this year’s third quarter was nearly identical to that of last year’s third quarter.

The private equity-backed/hybrid (PE-Hybrid) buyer group saw a modest 4% decline in activity from year-to-date 2019 to 2020, but was down only 2% in third-quarter 2020 versus the year-earlier period. Transactions by all other buyer groups were down 12% year-to-date 2020 versus 2019, but level for the third quarter in both years. 

Caledonia, Michigan-based Acrisure LLC again completed the most transactions for the first nine months of the year with 69, nearly the same as recorded in each of the comparable periods from 2017 to 2019. Columbus, Ohio-based Broadstreet Partners was second with 40 transactions, up from 26 in the year-earlier period, followed by Chicago-based Hub International Ltd., which completed 28 transactions, down from 37, and Assured Partners with 25 transactions, down from 31. World Insurance Associates rounded out the Top 5 with 23 transactions in 2020 compared with 14 during the first nine months of 2019. Also noteworthy is the rise of PCF Insurance as an active buyer as it recorded 22 acquisitions to date in 2020, compared with four in the same period in 2019.

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The third quarter of 2020 saw only two large M&A transactions with the acquisition of Rose & Kieran in Albany, New York, by NFP Corp., and People’s United Insurance Agency in Hartford, Connecticut, by AssuredPartners. 

By all measures, it is clear that the second-quarter 2020 drop in M&A activity was a one-off blip in the long-term growth of agency acquisitions as buyers and sellers have more confidence in understanding the impact of COVID-19 on the industry in general as well as in how to execute deals. We anticipate full-steam ahead in fourth-quarter 2020, and though the next wave in the pandemic may be major, deal activity should keep a similar pace into 2021, at which time an additional variable of a potential increase in taxes will add further fuel to the fire. 

The full report is available at optisins.com.

Timothy J. Cunningham, Daniel P. Menzer and Steven E. Germundson are principals at Optis Partners LLC., a Chicago-based investment banking and financial consulting firm that serves the insurance distribution sector. Mr. Cunningham can be reached at 312-235-0081 or cunningham@optisins.com; Mr. Menzer can be reached at 630-520-0490 or menzer@optisins.com and Mr. Germundson can be reached at 612-718-0598 or germundson@optisins.com.