2016 was the second highest year for M&A insurance agency deals across the U.S. says OPTIS Partners annual report
With a total of 449 recorded deals, M&A activity in 2016 is just off the record for the all-time highest number of deals made within a 12-month period. The all-time record still belongs to 2015, when 456 deals were recorded.
It was a sellers’ market last year, and it will probably remain one in 2017. But the ‘perfect storm’ benefiting sellers won’t last forever,” said Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry.
The 2016 annual report from OPTIS Partners tracks all of the reported transactions involving the purchase and sale of insurance agencies across the nation. While the report primarily focuses on transactions involving property & casualty insurance agencies, it also includes M&A activities for employee benefits agencies as well.
It is important to note, however, that while OPTIS Partners attempts to track all such insurance agency transactions, there are many agency purchase and sales that are never officially reported. As such, it is more than likely that the number of sales was higher than the 449 publicly reported.
Who bought what in 2016?
According to the annual report, 53 percent of the total acquisitions were made by agencies backed by private equity, making them the biggest group of buyers in 2016. In total, private equity backed agencies purchased a total of 237 agencies.
After private equity agencies, privately owned insurance agencies were the next most active group, buying a total of 124 agencies in 2016. Then came publicly-traded brokers with 41 announced deals, followed by banks with 25 deals. Carriers and other business entities ended the list with a combined 22 deals last year.
Who sold what in 2016?
On the selling side, the majority of the transactions involved property & casualty insurance agencies. Sales of these types of agencies accounted for 54% of the total number of transactions last year. Coming in second for sales were employee benefits agencies, which accounted for 20% of all sales in 2016. This was a jump up from 2015, says OPTIS Partners, in which employee benefits agencies made up just 17% of sales that year.
As for the remaining sales, deals for both P&C and employee benefits agencies remained constant representing 17% of all transactions followed by the “other” category which represented 9%.
OPTIS Partners’ advice for those agencies thinking about buying and/or selling
OPTIS partner Daniel P. Menzer recommended the following lessons in the firm’s latest report to those agencies still entertaining a purchase or sale of an agency.
- Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors.
- Buyers, in particular smaller and less capitalized firms, need to be careful not to get carried away in the pricing competition for a seller’s business only to find out later they can’t afford to pay for it.
- Firms wrestling with trying to perpetuate need to be steadfast in setting realistic valuations for internal transactions without getting overly swayed by actual and anecdotal pricing stories of other agency transactions.
- For agency owners waiting for the “right time to sell” before jumping on the bandwagon, now is the right time.
What is happening in Massachusetts
The increasing consolidation of the Massachusetts marketplace continued throughout 2016. Since our last update in October 2016, there appears was no slowing down in the purchase and sale of independent agencies throughout the Commonwealth.
Mr. Menzer noted that Massachusetts currently has a good group of active buyers, both from within and from outside the sates, as well as a nice population of potential sellers. But, as Mr. Menzer cautioned in Massachusetts agents back in October 2016, agents thinking about their short term vs. long terms plans should remember that, “…[t]he buying spree won’t last forever, so agents who are considering the sale of the agency should act sooner than later.”
As for buyers, Mr. Menzer continues to note that agents should be wary about getting caught up in the “appeal of the deal” which often results in an agent overpaying for an agency. Over payment in the purchase of an agency can quickly lead to major problems if the agency acquisition is not adequately capitalized.
Ultimately, Mr. Menzer reminds agents that if an agent is neither a buyer nor a seller, then the only thing that they should really be worrying about is how they can grow their agency which includes implementing a perpetuation plan so that an agent can ensure the future of the agency that he or she have worked so hard to create.
A look at the 32 transactions announced in Massachusetts in 2016
The following are the agency acquisitions that Agency Checklists has tracked and written about in 2016.
Please note that while we try and keep our own data up-to-date as much as possible, we cannot guarantee that we have included every transaction that has taken place in the Commonwealth so far this year. According to OPTIS Partners and Agency Checklists’ records, there were a total of 32 announced mergers and acquisitions announced in the Commonwealth during 2016.
January 2016 (Q1)
February 2016 (Q1)
Two Mass. Agents in Leominster Join Forces (The Judy A. Mendolusky Insurance Agency and The Anderson, Bagley & Mayo Insurance)
Brown & Brown, Inc. Acquisition of Social Security Advocates for the Disabled (Norwell)
March 2016 (Q1)
Sullivan, Garrity, Donnelly, of Worcester signs on with Acrisure
April 2016 (Q2)
Why This Well-Known Mass. Agent Signed On With Acrisure (Aronson Insurance signs on with Acrisure)
May 2016 (Q2)
June 2016 (Q2)
July 2016 (Q3)
August 2016 (Q3)
Hyannis’ Northwood Insurance signs on with Acrisure
September 2016 (Q3)
October 2016 (Q4)
Eastern Insurance acquires the Bass Insurance Agency
Eastern Insurance acquires the Hassey Insurance Agency