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Broker valuations continue to rise

rising chart

Prices paid for insurance brokerages increased steadily over the past 12 years and in the second quarter of 2022 the average guaranteed price of a company was more than twice the cost in 2010, according to an analysis by Reagan Consulting released Wednesday.

The report by the Atlanta-based mergers and acquisitions consultant said the average brokerage M&A valuation in the second quarter was 12.5 times earnings before interest taxes, depreciation and amortization for a well-run brokerage with $3 million to $5 million revenue, with a further three times EBITDA available through an earn out based on future performance. That compares with six times EBITDA for a guaranteed price and two-and-a-half times EBITDA available for an earn out in 2010.

In 2021, the average price was 12 times EBITDA guaranteed and three times EBITDA on an earn out, the report said. Strong demand from over 50 well-capitalized buyers and the still relatively low cost of capital drove the increase, Reagan said.

Meanwhile, another report showed that brokerage M&A activity remained strong in the first half of 2022.

Sica Fletcher LLC said last week its index of insurance agents and brokers showed deal volume increased 17% in this year’s first half, compared with the year-earlier period. The index tracks the 17 most active buyers of agents and brokers, the New York-based financial advisory company said.

The biggest buyers were PCF Insurance Services, Acrisure LLC, Hub International Ltd. and High Street Insurance Partners Inc.

Revenue acquired by companies in the index in the first half declined to $844 million, which is about 91% of the revenue acquired in the same period last year, the report said. The average size of agency acquired in this year’s first half was $2.97 million, compared with $3.83 million in the year-earlier period.