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Commercial broker consolidations expected to continue: MarketScout speaker

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DALLAS — Consolidation in the commercial insurance brokerage sector is likely to continue over the next several years driven in large part by funding from private equity entities, said Louis Caltavuturo, a partner with New York-based financial advisory firm Dowling Hales, at the MarketScout Entrepreneurial Insurance Symposium in Dallas on Wednesday.

Mr. Caltavuturo said that the next four to five years will be an active period of consolidation among commercial insurance brokers. “Consolidation will always be a factor in this industry and will continue to shape the landscape for years to come,” said Mr. Caltavuturo.

Funding from private equity players has had a profound effect on the reshaping of the broker landscape. In 2000, just 12% of broker revenue was controlled by private equity-backed companies, he said. By 2013, that figure rose to 25%, just over double, in 13 years. “I think that's revolutionary. That is really quite drastic,” Mr. Caltavuturo said of the shift.

While there are between 38,000 and 39,000 commercial brokers in the United States, those with annual revenue over $10 million constitute the top 1% and generate 55% of industry revenue, said Mr. Caltavuturo. It is this group of brokers that most interests private equity firms because the larger brokerages offer better chances of greater financial returns, he said.

Thus, it is that top 1% of brokers that all the consolidators with billions in private equity funding are all going after, making competition all the more acute and driving up valuations, said Mr. Caltavuturo.

“The stage is set for the massive trading of broker revenue in the next four to five years,” said Mr. Caltavuturo. “There will be a massive selloff and massive trading of billions of dollars of brokerage revenue,” he said. Whether deals take the form of mergers or outright acquisitions, “whatever the ultimate scenario will be, we're talking about billions of broker revenue, and I think it will be a very interesting time to see who winds up being the dominant player here.”

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