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Insurance M&A Activity Slowed in 2022 but Still the Second Highest Year on Record

Despite various economic and political challenges, the number of mergers & acquisitions deals in 2022 meant it was the second-most active year in history.
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insurance m&a activity slowed in 2022 but still the second highest year on record

After record activity in 2021, insurance mergers & acquisitions did not maintain pace in 2022. However, despite various economic and political challenges, the number of deals was the second-most active year in history. 

There were 708 M&A deals in 2022, down from 924 in 2021, according to insurance agency consulting firm MarshBerry. This represents a 23.4% decrease compared to 2021. 

Record inflation, a faltering economy, labor shortages, interest rate hikes and a flurry of deals that closed in the fourth quarter of 2021 driven by sellers that were concerned about a potential federal capital gains tax increase in 2022 all impacted M&A last year. 

“Despite the hurdles, 2022's final deal count will likely qualify as the second highest year on record," according to the “Q4 M&A Trends—Quarterly M&A Market Update" released by MarshBerry

The top 10 most active buyers accounted for 345 of the 708 transactions (48.7%), while the top three—Acrisure, Hub International Limited, and Peter C. Foy & Associates Insurance Services—accounted for 19.8% of the total transactions. 

2022 was the worst year for financial markets since 2008 as the Nasdaq lost one-third of its value and the S&P index decreased by almost 20%. However, valuations in the insurance distribution sector for 2022 were still very strong, even compared to the record-breaking multiples of 2021. 

Valuations on the guaranteed base purchase price for average firms in 2022 were flat compared to 2021—going from 10.70x to 10.71x. Further, platform deals, defined as the initial acquisition a private equity group makes to enter an industry, saw an increase in valuations on guaranteed base purchase price—going from 12.84x to 13.20x. 

Looking ahead to 2023, MarshBerry predicts M&A activity to continue at its current clip or decrease slightly in 2023 due to the sheer number of deals in the previous year and the tightening availability of debt. 

“As debt becomes more expensive or even unavailable, some buyers have decided to sit on the sidelines, making the M&A field a bit more level. We still see demand outpacing supply, but not by as large of a margin as in prior years," the report said, noting that “there are still lots of firms looking to invest in this space and valuations continue to remain high." 

Will Jones is IA editor-in-chief. 

Thursday, January 19, 2023
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