The M&A Bubble Deflates
A regression to the mean is the main theme of OPTIS Partners Quarterly Report for the third quarter of 2023 “Q3-2023”. According to the Chicago-based M&A Advisory Firm, there were 534 announced insurance agency mergers and acquisitions during the first three quarters of 2023. This number is down from the 729 in reported in 2022 and represents the largest decline through the third quarter ever reported.
“The slowdown in deal activity is driven by several factors,” said Steve Germundson, partner of OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “Rising costs of capital, the increase in leverage and a smaller supply of business owners ready to sell are primary reasons.”
Former top active buyers cut back and new ones take lead
As part of the overall slowdown in sales, perennial deal-count leaders, Acrisure and PCF Insurance, reduced their respective deal activity dramatically. Combined, they completed 81% fewer transactions than in 2022.
Broadstreet Partners and Hub International led all buyers with 43 and 37 transactions year-to-date, respectively. Other top buyers were Inszone Insurance Services and Leavitt Group at 27 deals apiece, World Insurance Associates at 24, and Arthur J. Gallagher at 25. No other buyer reported more than 25 transactions in 2023.
Of the 10 most-active buyers, four completed fewer deals through the first three quarters of 2023 versus 2022: Acrisure (off by 66%), Hub International (down 31%), Patriot Growth Insurance Services (down 10%), and Keystone Agency Partners (5% lower).
Leaders in year-over-year growth were Broadstreet Partners, up 87%, Leavitt Group (80%), Arthur J. Gallagher (67%), and Risk Strategies Company (up 35)%.
Acquirers with 15 or more deals in 2023
| BUYER BY TYPE | 2018 | 2019 | 2020 | 2021 | 2022 | Q1-Q3-2023 |
|---|---|---|---|---|---|---|
| Broadstreet Partners | 34 | 34 | 58 | 45 | 35 | 43 |
| Hub International | 59 | 52 | 65 | 62 | 70 | 37 |
| Leavitt Group | 5 | 10 | 12 | 24 | 20 | 27 |
| Inszone Insurance Services | 2 | 6 | 10 | 12 | 42 | 27 |
| World Insurance Associates | 9 | 18 | 42 | 53 | 39 | 26 |
| Gallagher | 36 | 34 | 23 | 25 | 26 | 25 |
| Acrisure | 101 | 98 | 108 | 122 | 107 | 24 |
| Risk Strategies Company | 10 | 22 | 18 | 24 | 24 | 23 |
| Keystone Agency Partners | 0 | 0 | 7 | 22 | 29 | 19 |
| Patriot Growth Insurance Services | 0 | 25 | 21 | 31 | 32 | 17 |
| The HIlb Group | 12 | 25 | 22 | 27 | 24 | 16 |
| High Street Partners | 1 | 3 | 9 | 71 | 44 | 15 |
| All Other | 374 | 331 | 410 | 590 | 538 | 235 |
P&C agencies dominate sellers
Among sellers, P&C-only agencies accounted for 333 of the total 534 transactions (62%), consistent with their percentage of the totals in recent years. Agencies that focus solely on employee benefits and agencies that write both P&C and employee benefits each accounted for 12% of sales.
MGA sellers accounted for 5% of the transactions, with the balance split among TPAs and sellers of life/financial services agencies, consulting, and other businesses associated with insurance distribution totaling 8% of sales. (Figures add up to 99% because of rounding.)
Optis expects a return to pre-bubble pace
“Despite the fact that the number of transactions has fallen dramatically since the end of 2022, there are still a lot of deals being done and a number of buyers likely not strapped with debt are upping their deal flow,” said Dan Menzer, partner at OPTIS.
“We continue to see valuations holding, especially for attractive sellers,” said Tim Cunningham, managing partner.
“The economic change of rising interest rates and a reduction in the supply of sellers has fundamentally changed the value proposition that the insurance distribution business represents. It has not reduced the demand from a still robust group of buyers. We expect the valuation environment to hold rather steady, though we could see that soften slightly for less attractive firms over the coming quarters.”
How to Access the Latest Report
The OPTIS Partners report is based on its own proprietary database tracking which are the most active acquirers and other announced transactions. So, while it is a reasonably accurate indication of deal activity in the sector, it is highly probable that the actual number of agency acquisitions was far greater than the total number reported.
One simple reason for this result is that many buyers and sellers do not report transactions at all, while other acquirers omit reporting small transactions. Access to the full report is available by clicking the image below:
For those interested in seeing the latest merger & acquisition activity in Massachusetts and New England, please refer to our proprietary listing, which has been updated as of Q3-2023.
