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Broker deals maintain momentum: S&P panel

Broker deals maintain momentum: S&P panel

NEW YORK — Mergers and acquisitions among insurance agents and brokerages continue at record pace in 2019, and valuations appear likely to maintain their climb buoyed by rate increases in the property/casualty market, according to panelists at S&P Global Inc.’s 10th Annual Insurance M&A Symposium in New York on Tuesday.

There were 580 transactions in 2018, making it “the most active year on record,” and there have been 451 transactions in so far in 2019, compared with 429 at the same point last year, said John Wepler, chairman and CEO of Marsh, Berry & Co. Inc., an analyst advisory firm based in Woodmere, Ohio.

“This is the most active M&A market in the history of the industry on the insurance brokerage side. The market is hot, it’s frothy, it’s absolutely intense,” Mr. Wepler said.

“It is a great asset class to be in, but a lot of folks in their desire to get into the space are being overly aggressive in the pricing around assets,” said Paul Vredenburg, executive vice president and chief acquisition officer at AssuredPartners Inc. in Hartford, Connecticut.

“I wouldn’t call it irresponsible or reckless, I’d call it aggressive for this time frame. The fact of the matter is people want to be in the space so badly they’re not really looking at the dynamics of the underlying asset,” Mr. Vredenburg said.

The current environment is “a perfect storm of a couple different factors,” said Elan Sharoni, vice president of M&A at brokerage NFP Corp. in New York.

“Access to capital and cost of capital is relatively cheap. There’s a lot of dry powder out there in terms of private equity markets. They’re very attracted to the industry, mainly for the free cash flow,” Mr. Sharoni said.

It would take something macro, like a recession, “to cause people to be more cautious and scale back,” Mr. Sharoni said, adding: “Otherwise I don’t see a reason why it will slow down.”

“There’s a reason why buyers in general have found that this strategy has been a successful one. It’s done well for many of the private equity investors who have come into this space,” said Devanshu Dhyani, head of strategy and corporate development at Marsh & McLennan Cos. Inc. in New York.

“I wouldn’t characterize valuations as unreasonable or within reason. For this time and a given track record, these valuations makes sense for these buyers. Many are coming in with a lot of experience and knowledge and believe they can add value and justify those prices,” Mr. Dhyani said.

The hardening property/casualty rate environment is a major driver in sustaining deal valuations going forward, panelists said.

“It’s a hardening market right now. Softening rates suppresses EBITDA (earnings before interest, taxes, depreciation, and amortization),” said Mr. Vredenburg.

“If I was an independent firm and valuations are at an all-time high and you’re staring into a hardening rate environment … it would take a lot for me not to want to take advantage of that,” Mr. Wepler said.


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