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Announced and reported mergers and acquisitions for U.S. and Canadian insurance agents and brokers were up more than 30% during 2017 compared with 2016, finishing the year at 604 vs. 461.
Quarterly totals for 2017 each exceeded all prior totals for the respective periods, and also represented the top four quarterly totals of all time.
For the year, Caledonia, Michiganbased Acrisure L.L.C. reported the most activity with 92 closed transactions, up from 63 last year. Chicago-based Hub International Ltd. was second, completing 49 transactions (see chart above).
Out of the top 10 buyers, only Lake Mary, Florida-based AssuredPartners Inc. saw a decrease in M&A count, albeit only a slight one, to 26 deals in 2017 from 28 in 2016.
Beginning with this report, we have created a new category of buyers, private equity/hybrid, to include all the private-equity backed buyers and certain active privately owned buyers with material internal or external acquisition financial support. As of Dec. 31, 2017, this change affected transactions previously reported as acquisitions by privately owned buyers from Acrisure, Atlanta-based OneDigital Health and Benefits (prior to its recent sale to New York-based New Mountain Capital L.L.C.), Tinton Falls, New Jerseybased World Insurance Associates L.L.C., Seeman Holtz Property & Casualty Group and Tampa, Florida-based Baldwin Risk Partners.
Using this new classification of buyers, the PE/hybrid buyers as a group announced 382 of the 604 transactions in 2017, or 63%, of all reported transactions, compared with 259, or 56%, in 2016.
There were seven new PE/hybrid buyers in 2017, although only one — Alera — had more than two completed transactions; and two firms that had previously been consistently active — New York-based Integro Ltd. and San Rafael, California-based Protector Holdings L.L.C. — did not announce any transactions.
Privately owned brokerage acquisitions increased to 128 transactions from 105 unique buyers in 2017, up from 114 acquisitions from 87 separate buyers in 2016. These totals for 2017 represent the highest number of both transactions and unique buyers from the privately owned buyer group. Of the 128 private transactions in 2017, only 12 firms completed multiple transactions totaling 35 deals, while the remaining 93 transactions were completed by 93 separate firms.
Property/casualty brokers continued to dominate the sell-side M&A landscape, with 301 of the 2017 transactions, or 49.8% of the total. Employee benefits brokers were acquired in 174 transactions, or 28.8%, nearly a 90% increase from 2016.
Agencies selling both property/casualty and employee benefits coverages saw 86 deals in 2017, while 43 “other” transactions involved managing general agents, third-party administrators and other sellers. Aside from the “other” category, each of the seller segments registered their highest number of deals of any year.
There were 23 firms reporting five or more transactions in 2016 and 2017, but the top 10 buyers in 2017 accounted for 56% of the total number of transactions, up from 52% in 2016 and only 42% in 2008, illustrating the continuing increase in concentration of buyer activity over the past 10 years.
During 2017, there were several significant transactions:
Marsh & McLennan Agency L.L.C. acquired West Point, Georgia-based J. Smith Lanier & Co., No. 30 on the Business Insurance ranking in 2016, in January.
High River, Alberta-based Western Financial Group Inc. sold to Winnipeg, Manitoba-based Wawanesa Mutual Insurance Co. in February.
Mahwah, New Jersey-based Capacity Coverage, No. 39 on the 2016 Business Insurance ranking, sold to San Franciscobased EPIC Insurance Brokers & Consultants in March.
Torrance, California-based Keenan & Associates, No. 22 on the 2016 Business Insurance ranking, was acquired by AssuredPartners in March.
Horsham, Pennsylvania-based Partners Specialty Group L.L.C., the ninth-largest wholesale firm, sold to Charlotte, North Carolina-based AmWINS Group Inc. in April.
Aon P.L.C. sold its human resources consulting division, Aon Hewitt, to Blackstone Group L.P. in May.
Wells Fargo & Co. announced the sale of its commercial insurance business, Wells Fargo Insurance Services USA Inc., to USI in June.
EPIC Insurance acquired New York-based Frenkel & Co., No. 48 on the 2016 Business Insurance ranking, from Memphis, Tennessee-based Dobbs Management Service L.L.C. in October.
There were also several changes in private equity backers announced or closed during the year:
Onex Corp. sold its interest in USI to New York-based Kohlberg Kravis Roberts & Co. L.P. and Montrealbased Caisse de dépôt et placement du Québec in March.
NFP received a new investment from New York-based HPS Investment Partners L.L.C. in February.
Jacksonville, Florida-based Fidelity National Financial Inc. sold its interest in OneDigital to New Mountain Capital in June.
Washington-based The Carlyle Group L.P. sold its interest in EPIC Insurance to New York-based Oak Hill Capital Partners in July.
M&A activity in the insurance brokerage sector continues to set records of activity, in part likely due to more buyers releasing information about their M&A activity than has been done in the past.
However, there is no doubt that the most active buyers, investors and lenders remain very optimistic about the insurance brokerage industry, as evidenced by their buying behavior.
In addition, the U.S. economy continues to make progress, the Dow Jones and other stock indices reached all-time peaks countless times during 2017, and the insurance underwriting sector will likely hold prices relatively stable in the near term following all the natural disasters experienced in 2017. And despite the turmoil surrounding health care in the areas of mandates, legislation, federal and state oversight, there were more sales of benefit brokers in 2017 than the two prior years combined.
Finally, there continues to be plenty of willing sellers to feed the buyer appetites, often at valuation multiples seldom, if ever, seen in the past. So until some external factor is introduced to the marketplace, the M&A activity is likely to continue, with both buyers and sellers happy with the results.
Timothy J. Cunningham and Daniel P. Menzer are principals at Optis Partners L.L.C., 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 email@example.com; Mr. Menzer can be reached at 630-520-0490 or firstname.lastname@example.org.
There was a 31% increase in merger and acquisition activity among insurance brokers in 2017, to a record 604 from 2016’s 461, Optis Partners L.L.C. said in a report Tuesday.