Acquisition brokers continue to buy rivals

Activity in mergers and acquisitions among insurance agents and brokers remains as strong as ever, despite increased general financial concerns.

The headwinds of rising interest rates, economic uncertainty and a rush of sellers to exit 2020 and 2021 have not slowed down the overall transaction activity in 2022, although there is some uncertainty about what the future has to offer.

The total number of US and Canadian transactions involving real estate / accident agents and brokers, brokers, executives and third-party administrators in the first half of this year increased by 14.4% to 427 from the previous record high of 369 in the first half of 2021 and was 23.4 % above the five-year average.

On a quarterly basis, 233 transactions were made during the second quarter, 18.9% higher than the 196 reported during the same period in 2021. On a subsequent 12-month basis, the current number of transactions was 1,118, significantly higher than the 1,060 reported throughout 2021 and the 795 reported for the same period last year.

Buyers’ appetite in addition to the traditional insurance targets has increased in recent years. The broad-buying universe now has a deeper appetite with a marked increase in sales types that include more life insurance and financial service companies, personnel consulting, actuarial services and other related activities that are directly or tangentially related to insurance distribution. So far in 2022, a total of 53 such acquisitions have been announced. Activity in previous years was not significant. We will continue to monitor these transactions and report on trends as they develop. Furthermore, we see a movement among several traditionally retail-focused companies to the wholesale and software guarantee sectors.

The private equity-backed companies’ history of rapid acquisitions, in some cases to generate as much revenue as possible, continues. The “foam-rinse-repeat” strategy of this strategy shows no signs of slowing down. Each of the active private equity backed brokers saw increases from year to year in addition to AssuredPartners Inc. and BroadStreet Partners Inc. In fact, PCF Insurance Services, Acrisure LLC and Hub International Ltd. increased its rate 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 and completed more transactions than any other buyer with 48 in the first half of 2022, up from 28 in the same period in 2021, and well above its five-year average for the first half of 19. Acrisure followed with 43 deals in the first six months of year, an increase of 43% from 30 reported during the same period last year. Hub logged 35 transactions, up from 25, and High Street Partners Inc. registered 20, which was two more than it registered in the first half of 2020.

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

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

The number of completed transactions is increasing in most segments, although the increase in large transactions – defined as revenue targets above $ 25 million – has slowed over the past two years, mainly due to a contraction in inventories. There were seven such large M&A transactions during the first half of 2021, and only one – Baldwin Risk Partners LLC’s acquisition of Westwood Insurance Agency – so far in 2022.

Some notable private equity-related transactions were announced during 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.

Moods for business so far in 2022 and talks with buyers indicate that the second half of the year will be robust. The final figure may not be as high as in 2021, but it may prove to be close.

Timothy J. Cunningham, Daniel P. Menzer and Steven E. Germundson are principals of Optis Partners LLC, a Chicago-based investment banking and financial consulting firm serving the insurance distribution sector. Mr. Cunningham can be reached at cunningham@optisins.com or 312-235-0081; Mr. Menzer can be reached at menzer@optisins.com or 630-520-0490; and Mr. Germundson can be reached at germundson@optisins.com or 612-718-0598.