Insurance agency mergers & acquisitions broke all records last year, according to a new report from OPTIS Partners, an investment banking and financial firm that specializes in the insurance industry.

OPTIS reports a 31% increase in deal volume between 2016 and 2017, recording 461 transactions in 2016 compared to a whopping 604 last year. And the actual number of sales may be even greater, since many buyers and sellers do not report transactions, and some acquirers do not report small transactions.

The record-breaking numbers exceeded expectations, says Tim Cunningham, managing director of OPTIS. “It’s the perfect storm,” he says. “With all the boomers retiring, you’ve got a robust inventory—they’re thinking, ‘Valuations are never going to get higher.’ And you’ve got a very well-capitalized buy side group, which is being driven by the private equity-backed firms.”

Based on those numbers, if you’re a retirement-age principal looking to “get out” in three to five years, “I’d consider doing it today,” Cunningham suggests. On the other hand, “if your timeline is beyond five to seven years—you don’t need to sell, you’re not ready to sell and the agency is doing well—keep it.”

Why? It’s simple—if your agency is growing even a little bit year over year, “your top line and bottom line, in five to seven years, is going to be larger,” Cunningham points out. “Even if valuations pull back a little bit, and I think they will, you’re still better off.”

The top five buyers in 2017 were Acrisure (92 acquisitions), Hub International (49), Alera Group (38), Broadstreet Partners (32) and Gallagher (30)—all of which fall into OPTIS’s private equity/hybrid category except Gallagher, which is publicly owned.

And hungry names like those are willing to pay big sums for well-run firms, which creates a unique challenge for smaller independent agencies that are looking to grow through acquisition. “Unless you see a real strategic value to an acquisition, it’s very difficult to compete in the marketplace,” Cunningham cautions. “These larger firms have a lot more risk tolerance—if they muck up a deal, it doesn’t hurt them.”

On the seller side, privately owned brokerages completed 128 transactions from 105 unique buyers in 2017, up slightly from 114 acquisitions and 87 unique buyers the previous year. The OPTIS report tracks agencies that sell primarily property-casualty insurance; agencies that sell both p-c and employee benefits; and agencies that sell primarily employee benefits. But p-c agencies dominated the seller list in 2017, accounting for nearly half of total deals.

Moving forward, is the staggering pace of M&As likely to continue? In the short term, “I don’t think we’re going to see as many this year,” Cunningham predicts. “We’re going to see a lot—it’s a pretty frothy climate—but I think there will be a tiny pullback.”

And in the long term? “I don’t have a 10- or 12-year crystal ball, but I think the only thing that would slow it down would be some external catastrophe—a global event or a crash like we saw in ’08-09,” Cunningham says. “Capital markets like our business because the cash flow is reasonably predictable. It’s a pretty simple business, it’s a business they can understand and, truth be known, it’s a fairly forgiving business as well.”

Jacquelyn Connelly is IA senior editor.