M&A Activity continues at a slower pace than the 2017 rate
The second quarter of 2018 continued on a slower path that the high of 2017, accoring to the latest OPTIS Partners in its latest quarterly report. A total of 135 deals reported were reported across the U.S. and Canada during the second quarter of 2018 (Q2-2018). This number is “down slightly” from the 147 reported transactions during the same quarter of 2017 (Q2-2017).
While 2018 has a much lower count of reported transactions, it still ranks as the second highest half-year total, after 1H-2017. Dan Menzer, a principal of OPTIS Partners and one of the authors of the firm’s quarterly report summed up this quarter by saying:
“The reduction in deal count from the second quarter and the first half of 2017 isn’t truly indicative of a decline in overall M&A activity. It’s more just a reflection of the aberration we saw in deal activity in 2017,” said Daniel P. Menzer of OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “Many owners of vibrant and solid agencies are still looking for the right buyer, and at least as many active and aggressive buyers are ready to meet the demand.”
In particular, OPTIS Partners notes that it does not believe the 16% Year-To-Date reduction in the total transaction count in 2018 versus 2017 indicates a slowing of overall M&A Activity. Rather, the firm believes that the decline is likely due “…to buyers completing larger than normal and/or international transactions” as well as to “…digesting all the transactions completed in 2017.”
Fourth highest number of transactions for the 12-month period ending the first quarter
Looking at the first half of 2018 (1H-2018), Q1 and Q2 combined had a total of 280 transactions, in comparison to the 333 transactions reported during the first half of 2017 (1H-2017).
The apparent slowdown in transaction activity in Q2 belies the fact, however, that Q2-2018 is still the fourth all-time highest quarter for reported transactions, behind on Q3-2017, Q4-2017, and Q1-2018. In addition, the OPTIS Partners Report notes that buyers continue to exhibit “aggressive behaviors” with respect to acquisition activity.
The following graph compares and contrasts M&A Activity by quarter over the past four years:
The quarterly report from OPTIS Partners includes data covering U.S. and Canadian insurance agencies that either sell property & casualty insurance, employee benefits, or both P&C and employee benefits. The report also includes transactions involving wholesalers and managing general agency brokerage businesses.
Acrisure continues to be the top buyer nationally in 2018
The leading buyer in Q2-2018 continued to be Acrisure with a total of forty-one (41) transactions recorded thus far, this year. After Acrisure, the second largest buyer is Hub International with a total of 33 acquisitions this year, follewed by AssuredPartners (19), Gallagher (15) and Alera and Broadstreet Partners (14 each).
As has been apparent over the past couple of quarters, the ownership column on the chart continues to be dominated by PE/Hybrid buyers, who continue to roll-up insurance agencies. This buyer group, alone, completed more than 70% of all the transactions in quarter (97 in Q2-2018 vs. 88 in Q2-2017) as well as slightly more than two-thirds of the transactions through the past six-months of the year (188 in total).
After PE/Hybrid buyers, privately-owned agencies were the next most active buyer group, although their overall numbers for Q2 (18 in Q2-2018 vs. 37 in Q2-2017), as well as their numbers for 1H-2018 (55 in the first half of 2018 vs. 82 in the first half of 2017) were lower than their 2017 numbers.
Additional take-a-ways from this latest quarterly report
On a final note, the OPTIS Partners’ report notes that agency valuations continue to be at their historical peaks. With this trend, the gap between an internal insurance agency value, most likely done for perpetuation purposes, versus a third party transaction’s valuation of the agency is continuing to diverge. As a result, the perpetuation choice is becoming increasingly difficult for more and more insurance agencies trying to make this decision.
As for tax concerns, the report notes that continuing on into the second half of 2018, results continue to show no apparent effects from the passage of the “Tax Cuts and Jobs Act of 2017.”
Merger and acquisition activity in Massachusetts in 1H-2018
As we do every quarter, the following is our own list of the agency acquisitions that Agency Checklists has tracked and written about in the first quarter of 2018, along with some contributions from OPTIS Partners regarding any agency acquisitions that we may have missed.
January 2018 (Q1)
Eastern Insurance Group Acquires The Southeastern Insurance Agency, Inc.
WTPhelan Acquires Waltham Insurance Agencies (Bateman Insurance Agency)
Kaplansky Insurance Acquires The Anthony & Malcolm Agency
ICNE Welcomes The Eastman & Davis Insurance Agency
The Segal Group acquires Touchstone Consulting OneDigital Health and Benefits Acquires Insight Performance
February 2018 (Q1)
F. Ward Insurance Agency Acquires Pine Insurance Agency Assets
Alera Group acquires Aisling Partners Insurance Brokerage
Alera Group acquires Spring Consulting Group
One Digital Group acquires The Survey Group
March 2018 (Q1)
Salem Five Insurance Acquires Gloucester’s Cape Ann Insurance
Hub International Acquires The Assets Of Massachusetts-Based Leitao Insurance Agency Inc.
Hub International Acquires the Assets of Massachusetts’ Rubino Enterprises (TYG Insurance)
April 2018 (Q2)
No transactions reported
May 2018 (Q2)
June 2018 (Q2)
More about OPTIS Partners
OPTIS Partners was founded in 2002 by Tim Cunningham after a successful career in a privately owned insurance agency and other industry consulting firms.
- Mr. Cunningham focuses his attention on the M&A needs of his clients and expanding the breadth of services to agents, insurance companies and other financial institutions.
- Mr. Menzer joined the firm in July, 2008 with an extensive history of P&C brokerage financial management experience combined with his Big 8 public accounting and industry consulting background.
OPTIS Partners has been involved with M&A transactions representing both buyers and sellers, and provided Fair Market Valuations and Ownership Perpetuation strategies for countless agencies throughout the country. In addition, it has worked with a variety of insurance companies and their agents, insurance agency associations, banks and other insurance distribution parties on a diverse set of consulting engagements. Client engagements have included the following:
- Represented more than 100 buyers and sellers since 2005 in M&A transactions ranging in value from $500,000 to over $250 million
- Worked with several national insurance companies to develop and present perpetuation and M&A workshops to agency principals
- Facilitated the Strategic Planning meetings of insurance agencies, agency associations, and banks and other financial institutions focusing on maximizing agency values and investment returns
- Worked with clients on planning for producer recruitment and compensation alternatives, M&A strategies and ownership perpetuation planning.
View the entire Q2-2018 report here.
