Acquiring brokers continue to buy rivals

M&A activity among insurance agents and brokers remains as strong as ever, despite increasing general economic concerns.

Headwinds from rising interest rates, economic uncertainty and the rush of sellers to exit in 2020 and 2021 have not dampened overall deal activity in 2022, although there is some uncertainty about what the future holds.

The total number of transactions in the United States and Canada involving property and casualty agents and brokers, employee benefits brokers, managing general agents and third-party administrators during the first half of this year increased by 14.4% for reach 427, up from the previous high of 369 in 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% more than the 196 reported during the same period in 2021. On a 12-month basis, the number of current transactions was of 1,118, significantly higher than the 1,060 reported in all of 2021 and the 795 reported for the prior year period.

Buyer appetite beyond traditional insurance distribution targets has grown in recent years. The broad universe on the buy side now has a deeper appetite with a marked increase in seller types which includes more life insurance and financial services companies, human resource consulting, actuarial services and other ancillary businesses directly or indirectly related to the distribution of insurance. So far in 2022, a total of 53 such acquisitions have been announced. The activity of previous years was not significant. We will continue to monitor these transactions and report on trends as they develop. Additionally, we are seeing a shift among several traditionally retail-focused companies into the wholesale and program underwriting sectors.

The history of rapid corporate acquisitions backed by private equity, in some cases to raise 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, with the exception of AssuredPartners Inc. and BroadStreet Partners Inc. In fact, PCF Insurance Services, Acrisure LLC, and Hub International ltd. increased 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 deals than any other buyers with 48 in the first half of 2022, up from 28 in the same period of 2021, and well above its five-year average of 19 in the first half. Acrisure followed with 43 deals in the first six months of this year, up 43% from the 30 reported in the same period last year. Hub recorded 35 deals, down from 25, and High Street Partners Inc. recorded 20, two more than in the first half of 2020.

In total, the 10 most active buyers have recorded 55% of deals announced so far in 2022. A total of 72 buyers have completed the remaining 44% of deals, 39 of which have completed more than one acquisition.

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

The number of closed deals is increasing across most segments, although the increase in large deals – defined as targets with revenues over $25 million – has slowed over the past two years, primarily due to decrease in inventory. There have been seven such M&A transactions in the first half of 2021, and only one – the purchase of Westwood Insurance Agency by Baldwin Risk Partners LLC – so far in 2022.

Some notable private equity transactions were 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.

Transaction counts 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 turn out to be close.

Timothy J. Cunningham, Daniel P. Menzer and Steven E. Germundson are principals at Optis Partners LLC, a Chicago-based investment bank and financial advisory firm serving the insurance distribution industry. Mr. Cunningham can be reached at [email protected] or 312-235-0081; Mr. Menzer can be reached at [email protected] or 630-520-0490; and Mr. Germundson can be reached at [email protected] or 612-718-0598.