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M&A Deals Drop 27% in Q3 2023

Insurance agency mergers & acquisitions saw the largest decline through the third quarter ever reported, with 534 in the year so far.
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m&a deals drop 27% in q3 2023

Independent insurance agent and broker mergers & acquisitions continue to trend downward, according to OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

There were 534 announced insurance agency mergers & acquisitions during the first three quarters of 2023, down from 729 in 2022, according to OPTIS Partners' M&A database, representing a 27% drop and the largest decline through the third quarter ever reported. The decline follows a 24% decrease in the first half of 2023 and a 17% decrease in the first quarter of 2023.

“The slowdown in deal activity is driven by several factors," says Steve Germundson, partner of OPTIS Partners. “Rising costs of capital, the increase in leverage and a smaller supply of business owners ready to sell are primary reasons."

This has caused perennial deal-count leaders Acrisure and PCF Insurance to slow deal activity dramatically. Combined, the two companies did 81% fewer transactions than in 2022. Broadstreet Partners and Hub International lead all buyers with 43 and 37 transactions year-to-date, respectively. Other top buyers are Inszone Insurance Services and Leavitt Group with 27 deals each, World Insurance Associates at 24, and Arthur J. Gallagher at 25.

The OPTIS report also illustrates a continuing trend of private-equity (PE) backed buyers reducing activity. PE-backed buyers did 67% of all transactions so far in 2023 compared to 71% in the same period in 2022 and 69% in the first half of 2023.

Overall, the market is cooling from the record-breaking activity in 2021 and is expected to return to its pre-bubble condition. However, the attractiveness of the independent agent and broker model as a revenue source remains and deals will continue to be made.

“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," says Dan Menzer, partner at OPTIS.

“We continue to see valuations holding, especially for attractive sellers," says Tim Cunningham, managing partner at OPTIS. “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," Cunningham adds.

Will Jonesis IA editor-in-chief. 

Thursday, December 7, 2023
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