Acquisitive brokers keep buying rivals

Mergers and acquisitions activity among insurance agents and brokers remains as strong as ever, despite increased general economic concerns. 

The headwinds of rising interest rates, economic uncertainty and a rush of sellers to the exits in 2020 and 2021 have not slowed overall deal activity in 2022, although there is some uncertainty about what the future holds.

The total number of U.S. and Canadian transactions involving property/casualty agents and brokers, benefits brokers, managing general agents and third-party administrators during the first half of this year rose 14.4% to 427 from the previous all-time high of 369 during the first half of 2021 and were 23.4% above the five-year average.

On a quarterly basis, there were 233 transactions during the second quarter, 18.9% higher than the 196 reported in the same period in 2021. On a trailing 12-month basis, the current deal count was 1,118, significantly higher than the 1,060 reported in all of 2021 and the 795 reported for the year-earlier period. 

Buyers’ appetite beyond the traditional insurance distribution targets has expanded over the past few years. The broad buy-side universe now has a deeper appetite with a marked increase in seller-types that includes more life insurance and financial services companies, human resources consulting, actuarial services and other ancillary business directly or tangentially related to insurance distribution. So far in 2022, a total of 53 such acquisitions have been announced. Activity in prior years was not material. We will continue to monitor these transactions and report on trends as they develop. Further, we see a movement among several traditionally retail-focused companies to the wholesale and program underwriting sectors. 

The private equity-backed firms’ story of fast-paced acquisitions, in some cases to amass as much revenue as possible, continues. The “lather-rinse-repeat” nature of this strategy shows no signs of slowing down. Each of the active private equity-backed brokers saw year-over-year increases except for AssuredPartners Inc. and BroadStreet Partners Inc. In fact, PCF Insurance Services, Acrisure LLC and Hub International Ltd. picked up their pace by 40% or more, and Inszone Insurance Services and Patriot Growth Insurance Services LLC more than doubled their number of closed deals. 

PCF Insurance took the lead, completing more transactions than all other buyers with 48 in the first half of 2022, up from 28 in the same period in 2021, and well above its five-year first-half average of 19. Acrisure followed with 43 deals in the first six months of this year, up 43% from 30 reported in the same period last year. Hub logged 35 transactions, up from 25, and High Street Partners Inc. recorded 20, which was two more than it recorded in the first half of 2020. 

In total, the 10 most active buyers have booked 55% of the announced transactions so far in 2022. There were 72 buyers in total that completed the remaining 44% of the deals, 39 of which did more than one acquisition.

Historically active buyers whose transaction count dropped below their five-year average included AssuredPartners, which reported 10 fewer; BroadStreet Partners and Arthur J. Gallagher & Co., both down by three; and World Insurance Associates LLC and reported two fewer.

The number of completed deals is on the rise across most segments, although the rise in large transactions — defined as targets with revenue greater than $25 million — has slowed the last two years, principally because inventory has shrunk. There were seven such large M&A transactions in the first half of 2021, and only one — Baldwin Risk Partners LLC’s purchase of Westwood Insurance Agency — so far in 2022. 

There were some notable private equity-related transactions announced in the first half of 2022. Peloton Capital Management acquired a significant minority position in Unison Risk Advisors, Carlyle Group Inc. announced the acquisition of NSM Insurance Group from White Mountain Insurance Group Ltd., and Aquiline Capital Partners announced the acquisition of a majority stake in Distinguished Programs Group LLC from management.

Tallies for deals so far in 2022 and conversations with buyers indicate that the second half of the year will be robust. The final tally may not be as high as in 2021, but it could prove to be close. 

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 cunningham@optisins.com or 312-235-0081; Mr. Menzer can be reached at menzer@optisins.com or 630-520-0490; and Mr. Germundson can be reached at germundson@optisins.com or 612-718-0598.