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Year-end flurry seals record M&A deals

Year-end flurry seals record M&A deals

With a strong finish to the year from a number of very active buyers as well as some first-time acquirers, the 2018 agency acquisition count reached a new high of 626 transactions in the U.S. and Canada, an increase from the 611 transactions reported in 2017.

For the fourth quarter of 2018, there were 148 reported transactions, the highest total ever for a fourth quarter, up from 143 in 2017. Moreover, four of the top 10 buyers reported their highest or tied for the highest number of transactions during the fourth quarter than any previous quarter.

During the second half of 2018, there were 330 transactions reported, up from 278 in 2017. Until 2014, there had never been 330 agency acquisition transactions reported for the entire year.

Once again, private equity-backed Caledonia, Michigan-based Acrisure LLC reported the most activity with 101 closed transactions, not counting their reinsurance broker acquisition in London, an increase from the 92 transactions competed in 2017. Chicago-based Hub International Ltd. was second, completing 59 transactions, up from 49 in 2017 (see chart, above).

The PE/hybrid group remains the most active group of buyers, occupying eight of the top 10 buyer spots in the table above and 419 of 626 transactions for the year, or two-thirds of all agency acquisition transactions. The concentration of acquisitions by the top 10 buyers remained at 62% for the full year 2018 compared with only 56% in 2017.

Thirty-two PE/hybrid firms completed one or more acquisitions in 2018, up from 29 in 2017. However, the number of these firms that completed five or more transactions dropped in 2018 to 14 firms compared with 17 in 2017. On the other hand, there were nine new buyers in this group in 2018, a slight increase from the eight new buyers in 2017.

Privately owned brokerage acquisitions decreased to 112 transactions by 81 unique buyers in 2018 from 137 transactions by 107 unique buyers in 2017. Sixty-seven buyers completed only one transaction in 2018 compared with 94 in 2017. In 2018, 54 first-time privately owned buyers entered the acquisition fray compared with 76 first-time buyers in 2017.

Property/casualty brokers continued to dominate the sell-side mergers and acquisitions landscape, with 345 of the 626 transactions, or 55% of the total, up from a 51% share for all of 2017. Employee benefits brokers were acquired in 146 transactions, or 23%, down from 28% in 2017.

Since June 30, 2018, there were several significant transactions:

  • Marsh LLC announced the acquisition of Wortham Insurance & Risk Management in August.
  • EPIC Insurance Brokers & Consultants announced the acquisition of Integro Group Holdings LP’s U.S. operations in December.
  • KKR & Co. Inc. sold its interest in Sedgwick Claims Management Services Inc. to The Carlyle Group in September.
  • Altas Partners LP made an equity investment in Hub International in November.
  • Three private equity firms — Blackstone Group LP, Partners Group AG and Harvest Partners LP — announced a new investment in Acrisure in December.
  • TowerBrook Capital Partners LP acquired Gryphon Investors Inc.’s interest in Orchid Underwriters Agency LLC in December.
  • Brown & Brown Inc. announced the acquisition of Hays Group Inc., which does business as Hays Companies, in December.

The M&A activity in the insurance brokerage sector, both at the individual agency transaction level as well as from third-party capital and equity partners, remains extremely vibrant. Agency valuations and multiples seem to inch a bit higher for the best properties each year. With new private equity and lender-backed buyers still entering the broker world along with a large number of very enthusiastic buyers already, the demand for insurance agency acquisition opportunities is likely to remain strong for the foreseeable future, barring some external economic or geopolitical event, in which case all bets are off.

With all the active buyers constantly in search of quality opportunities, the pressure on the independent agency to consider selling is enormous. On top of that, with the pricing being put forth to prospective sellers, the decision to remain private and independent becomes much more financially difficult as the difference to internal perpetuation values continues to grow.

Timothy J. Cunningham and Daniel P. Menzer 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; Mr. Menzer can be reached at 630-520-0490 or