According to OPTIS Partners’ third quarter report, 2017 was on pace to be a record-setting year for insurance agency merger and acquisition (M&A) activity. In the first nine months of 2017 alone, 457 total transactions were reported, compared to only 350 total transactions in 2016. In their report, OPTIS asserted that the market for insurance agencies would remain a “seller’s market.”
“There’s no end in sight to the upward trend. The appetite of buyers is undiminished, as is the supply of agencies for sale,” managing director of OPTIS Partners, Timothy J. Cunningham said. OPTIS Partners is an investment banking and financial consulting firm specializing in the insurance industry.
Cunningham continued, “It’s absolutely certain 2017 will be another record-setting year for M&A activity. The activity is fueled by aggressive buyer valuations, in particular from private-equity backed buyers who are flush with cash. And, there’s a plentiful supply of aging agency principals who need to complete their exit strategies.”
OPTIS Partners’ proprietary Mergers and Acquisitions Database covers American and Canadian agencies primarily selling property-and-casualty insurance, employee benefits, or both.
OPTIS Partners’ third quarter report divides buyers into five groups: private-equity backed brokers, privately held brokers, publicly held brokers, and banks. The remainders are placed in the fifth and final category. The following graphs report transactions from buyer and sellers across groups for 2015-2017. This graph includes the Trailing 12-Months (TTM) totals through September.
As the chart shows, privately owned brokers accounted for the most transactions, with 65 total transactions. Private-equity backed brokers purchased 50 agencies, while publicly owned brokerages purchased 10 firms, and banks made a total of 6 acquisitions.
This graph importantly points out the classification change of Acrisure from a private-equity backed broker to a privately-owned firm in November 2016. According to OPTIS, this change has contributed to a significant shift in the totals by buyer type. If this change had not occurred, the private-equity backed transaction count for the quarter would have been 73 total transactions as compared to the 42 total transactions from private buyers.
This chart analyzes transactions by seller type from 2015 through the first three quarters of 2017. The data in this chart shows that property and casualty agencies have remained popular, accounting for 69 total transactions in the third quarter. Sales of employee benefits brokers have increased in 2017, totaling 34 transactions. Of all the agencies that sell both property and casualty agencies and employee benefits, 15 were sold.
“Sellers have a great opportunity today,” OPTIS Partners’ partner, Daniel P. Menzer said. “If you are a potential seller, consider acting sooner than later while the irons are hot and the pricing is favorable. If you're a buyer, do your homework on the potential seller. Fully evaluate their risk and growth potential. Look at the financials in depth and consider qualitative factors. Overpaying can be deadly.”
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