Insurance Agency Mergers and Acquisitions Increase in Q3
Research showed 170 announced insurance agency mergers and acquisitions during the third quarter of this year. This compares with just a few more (173) for the same period in 2019. The data comes from a report from consulting firm OPTIS Partners. OPTIS is an investment banking and financial consulting firm specializing in the insurance industry. The firm says that deal activity was 31% higher than the 130 transactions in Q2. In Q2, of course, the U.S. found itself squarely in the middle of the pandemic.
For the first nine months of this year, the total insurance agency deal count was 466. That’s just a 7% drop-off from 499 reported for the same period in 2019.
The numbers include both American and Canadian agencies selling primarily property & casualty insurance. They also include agencies selling both property & casualty, and employee benefits, and those selling just employee benefits.
“The small decline is entirely the result of the second quarter 2020 COVID slowdown,” Steve Germundson, a partner at OPTIS Partners, commented in an interview with The Insurance Journal. “Sans pandemic, 2020 would have been on track as a record-setting year. It’s still possible that it will set an insurance agency annual record.”
“Nearly every active buyer from the past few years continues to drive their M&A strategy aggressively, and there are newly emerging buyers now showing up for the first time on the most-active buyer lists,” Germundson said.
Insurance Agency Report Details
Observations in the report from OPTIS Partners note that the slowdown in deal activity in the Q2 was, in their words, “noticeable”—roughly 25% less that Q2 of 2019. The report highlighted the uptick in Q3, with no change in 3rd quarter volume and a year-to-date 2020 total that was only 7% lower year that the same quarter in 2019.
OPTIS Partners also found that “Many pundits erroneously anticipated a slowdown in insurance agency M&A, Image credit: Alpha Stock Images, activity to have continued into the 3rd quarter and possibly beyond. It did not happen. M&A activity should continue unabated due to the increasing supply of capital chasing a still very large inventory of sellers.”
The consulting firm believes that 4th quarter M&A activity will accelerate because there are sellers trying to close before year end. They want to guard against a possible increase in capital gains tax in 2021.
The report from OPTIS Partners classified buyers into four groups:
Private equity-backed/hybrid brokers;
Privately held brokers;
Publicly held brokers; and
The report broke down insurance agency sellers into the following areas:
Property/casualty and employee benefits brokers;
Employee benefits brokers; and
Acrisure Again Leads the Way
Michigan-based Acrisure, one of the industry’s fastest-growing insurance brokers, continues to top all buyers, with 69 transactions in the first three quarters of the year. These figures are consistent with its same-period-totals in 2017 through 2019. The insurance broker announced in July that it had acquired artificial intelligence (AI) company Tulco LLC. Acrisure plans to leverage data science, AI, and machine learning capabilities to the insurance agency industry. Its goal is to innovate in product development as well as insurance sales and marketing across its global network, which includes commercial property and casualty, life, and employee benefits brokerages.
Bloomberg reported the value of the acquisition at $400 million, which was transacted as a stock-for-stock trade and resulted in Tulco becoming a significant minority shareholder in Acrisure.
Acrisure has exploded from $650 million in annual revenue in 2017 to more than $2 billion. The company has inked more than 500 insurance agency acquisitions the past several years. Focused on the U.S. small and medium commercial market, Acrisure is majority-owned by employees and has locations in six countries.
Other Top insurance Agency Buyers
Broadstreet Partners was next on the list in Q3, with 40 deals (up from 26 in 2019). Third was Hub International with 28 transactions (37 for the same period in 2019), followed by Assured Partners with 19, which is a drop from 31 in 2019.
One of the newly emerging buyers considered “most active” was World Insurance Associates, based in Tinton Falls, NJ. They company completed 23 transactions in 2020—an increase from just 14 in 2019. Also considered “most active” was PCF Insurance with 22 deals, which is four more than last year at this time. The report noted that there were a number of other historically active buyers that saw their transaction count decrease dramatically through nine months of this year. The list includes Gallagher of Rolling Meadows, IL, whose count declined from 27 to 13; and Patriot Growth, whose transactions dropped by almost half, from 23 to 11.
The Dominant Players
The private equity-backed/hybrid group of buyers is still the dominant player with the volume of transactions, comprising about 70% of the total. Acquisitions completed by privately held firms increased to 18% of the total, while acquisitions by publicly-traded firms continue to drop—now at only 9% of all deals.
Property & casualty insurance sellers made up almost half (252) of the total 466 transactions, in line with their transaction total percentages in recent years.
OPTIS expects the current pace of mergers to continue as plenty of capital still remains, and there’s a large inventory of sellers.
“A faster pace of deals has clearly returned, and we expect it to continue given that the supply of both buyers and sellers remains very high, and the clarity of how to manage during pandemic times improves,” said Tim Cunningham, managing partner at OPTIS. “The most significant threat going forward is an economic slowdown driven by a much more severe wave of the pandemic and/or failure of a meaningful funding plan for state and local government coming out of Washington.”