Zywave | Advisen Front Page News
- Thursday, August 3, 2023
Agency M&A deals drop 24% in first-half 2023: OPTIS
Agency M&A deals drop 24% in first-half 2023: OPTIS
By Erin Ayers, Front Page News
The number of reported insurance agency mergers and acquisitions dropped to 359 in the first half of 2023 from 475 one year earlier, a slide of 24%, according to OPTIS Partners.
“The drop-off in deal count continues as we move through 2023, which isn’t surprising anyone if for no other reason than the cost of capital has increased so much,” said Steve Germundson, a partner at OPTIS Partners, an investment banking and financial consulting firm specializing in insurance.
Lower interest rates over the last two years created a “bubble” of deal activity that is now subsiding, according to the OPTIS report.
The 375 deals remained level with the five-year average but marked the lowest first-half total since 2020. However, deal volume should stay at average levels because many buyers continue to look for opportunities and the baby-boomer retirement wave in the nation’s agency system is ongoing.
“The nine-quarter deal bubble that began in Q4 2020 is clearly in the rear-view mirror,” Germundson said. “But we’re continuing to see interest in the buy-side from a large number of firms, and there is evidence that valuations for better firms remain strong. If interest rates continue to rise as expected, there may be more buyers forced to the sidelines, creating opportunities for those with stronger balance sheets.”
“An active buyer community is just one part of the equation. The other part is that there is still a large number of aging agency owners who will be providing plenty of supply for the continuing demand,” said Cunningham.
OPTIS predicted “some fairly large transactions to occur” in the near future. Indeed, shortly after the report came out, Marsh McLennan Agency announced the acquisition of Top 100 broker The Graham Company.
In H1 2023, Hub International and BroadStreet Partners completed the most transactions at 29 and 26 deals, respectively. Inszone, World Insurance Associates, and Patriot Growth followed with 22, 17, and 16 deals, respectively.
Some historically active buyers cut back materially on deals this year compared to H1 2022, including PCF (down from previous levels by 98%), Acrisure (down 74%), and Highstreet Partners (down 57%). These three firms accounted for over 75% of the drop in the number of completed transactions, OPTIS reported.
On the other side, three firms stepped up their activity significantly: World Insurance Associates (up 112%), Risk Strategies (86% higher), and BroadStreet Partners (up 62%).
For the report, OPTIS breaks out American and Canadian buyers into four groups: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and all others. The private equity-backed/hybrid group of buyers continued a long-term buying spree with 69% of all transactions for the quarter, while transactions between private parties accounted for 22%. Publicly held brokers and all others accounted for just 9% of deals.
Property/casualty insurance agencies comprised 60% of all transactions at 214 deals, while employee benefits firms accounted for 12% (45). Firms offering both services contributed 47 deals (13% of the total).
Managing Editor Erin Ayers can be reached at erin.ayers@zywave.com