Agency M&A Market Still Hot—But Will It Last?

After a surge in the pace of agency mergers and acquisitions in 2015, the final tally of 2016 transactions was not far behind.

Insurance agency M&A last year was the second-highest ever recorded, according to OPTIS Partners’ annual report. The OPTIS database recorded 449 deals in the U.S. and Canada in 2016—a slight dip from the all-time record of 456 in 2015.

“It was a sellers’ market last year, and it will probably remain one in 2017,” says Timothy J. Cunningham, managing director of OPTIS. “But the perfect storm’ benefiting sellers won’t last forever.”

Private-equity backed agencies were 2016’s biggest buyers, making 237 purchases or 53% of the total. The top two buyers were Acrisure, which executed 63 deals, and Hub International, racking up 45 deals. Privately owned insurance agencies came in second, purchasing 124 agencies, followed by public brokers (41), banks (25), and carriers and remaining organizations (22).

On the selling side, property-casualty agencies continue to dominate the list at 54% of all sales. Sales of employee benefits agencies rose to become the second most popular category, accounting for 20% of sales, up from 17% in 2015. Deals for agencies selling both p-c and employee benefits held steady at 17% of transactions. The “other” category was 9%.

What are the key takeaways for the industry? Daniel P. Menzer, partner at OPTIS, notes:

• 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 it.
• Firms wrestling with perpetuation need to be steadfast in setting realistic valuations for internal transactions without letting actual and anecdotal pricing stories of other agency transactions sway them too much.

“For agency owners waiting for the ‘right time to sell’ before jumping on the bandwagon, now is the right time,” Menzer says.

Katie Butler is IA editor in chief.