Return to normal: Broker 3rd quarter M&As second highest ever, despite YTD hit

There were 627 announced insurance agency merger and acquisitions in the first three quarters of this year, but that’s down from 668 during the same period in 2021, according to OPTIS Partners. Nevertheless, it still is the the second-highest recorded total for this nine-month period.

“Several factors account for the year-over-year change in the number of deals done so far in 2022,” said Steve Germundson, a partner in OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “The single biggest factor is a regression to the mean coming off last year, in which the number of deals far outpaced prior years. The current number of deals is very close to the five-year average.”

OPTIS released third-quarter data covering U.S. and Canadian agencies selling property-and-casualty insurance; agencies selling both property and casualty and employee benefits; and those selling only employee benefits. Data in 2022 were expanded to include life and financial services, consulting and other businesses associated with insurance distribution.

Acrisure led all buyers with 80 transactions year-to-date, far more than any other buyer, and slightly ahead of its historic pace. Other top buyers were PCF Insurance at 56 deals (down from 68 in 2021 and Hub International with 50 (down from 40). No other buyer reported more than 30 transactions.

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Of the 10 most-active buyers, only four completed more deals through three quarters of 2022 than in 2021. Inszone Insurance Services increased by 17, Keystone Agency Partners was up by 16, Hub International did 12 more deals and Acrisure was up by three.

Private equity-backed and hybrid buyers account for nearly eight in 10 transactions so far in 2022. Acquisitions by privately held brokers slipped slightly to 13%. Publicly traded brokers have held steady at about 5% of total transactions.

“This return to a ‘normal’ number of deals is to be expected, considering the surge in deals last year along with the fact that a lot of the agency owners contemplating whether or not to sell pulled the trigger on it in the last few years,” OPTIS partner Dan Menzer said. “The inventory has shrunk.”

Two major factors are influencing today’s valuations. “The increase in the cost of capital should work to reduce values, yet the ever-expanding number of buyers appears to be propping them up,” said Tim Cunningham, managing partner of OPTIS. “The net effect is a valuation environment that is holding rather steady, though we could expect underwriting standards to tighten, and a few buyers could be finding themselves limited by high leverage.”