Economic conditions blamed for decline in insurance agency M&A in 2021 – InsuranceNewsNet

Activity by types of buyer and seller

When the newly adopted seller categories are excluded, the decline is even more dramatic, as the number of transactions fell by 17% from 1,066 in 2021 to 885 in 2022.

“2022 was a tale of two halves,” said Steve Germundson, a partner at OPTIS Partners, an investment banking and financial advisory firm specializing in the insurance industry. “The solid first half was driven by a backlog of deals not yet completed and still favorable economic conditions. The buying spree continued as there were 23% more closed deals than in the same period last year.

“However, as soon as the third quarter began and the deal inventory declined, the impact of rising capital costs was felt and the flow slowed. Interestingly, the number of deals in each of the first six months of 2022 was higher than the same month of the previous year, and each of the last six months was lower.”

Top buyers

Acrisure continued to lead all buyers with 107 transactions in 2022, down 12% from its 2021 total but 3% higher than the previous five-year average.

PCF Insurance followed with 71 completed transactions (down from 99 in 2021). Other top buyers were Hub International with 70 acquisitions (down from 62 in 2021) and High Street Partners with 44 (down from 71 in 2021). Inszone Insurance Services with 42 deals (up from 12 in 2021) rounds out the top five.

Another group of active buyers recorded between 30 and 40 transactions in 2022: World Insurance Associates (39 in 2022 vs. 53 in 2021), BroadStreet Partners (35 vs. 45), Liberty Company Insurance Brokers (33 vs. 10), Assured Partners (33 Article 52) and Alera (30 Article 45).

Of the 17 firms that closed more than 20 deals in 2022, only Hub, Inszone, Liberty Company and Keystone Agency Partners closed more deals than the previous year. Those among this group of 17 traders who recorded the most dramatic reductions were PCF (28 fewer deals), High Street Partners (27 fewer) and AssuredPartners (19 fewer).

Private equity buyers dominate

There is no significant change in the types of buyers driving M&A activity. The private equity/hybrid group of buyers continued to dominate transaction volume with approximately 75% of the total.

Acquisitions by private firms increased to nearly 17%, while publicly traded companies fell somewhat to 4% of all deals, respectively. The most active private buyers in 2022 were Liberty Company Insurance Brokers at 33 (up from 10), Westland Insurance Group at 15 (up from 9) and TrueNorth Companies at 10 (up from 4).

P&C agencies most commonly sold

P&C sellers accounted for 557 of the total 978 transactions (56%), similar to their percentage of the total in recent years.

“The industry seems to have turned on a dime since July 1. Deal numbers are down, underwriting scrutiny is higher, and valuations for most, with the exception of A-level sellers, are down somewhat,” said Tim Cunningham, managing partner of OPTIS Partners.

“We are probably at the beginning of a transition period that brings us back to historical norms. Interest rates are higher than they have been in recent memory, but are still at or below long-term historical averages. Ratings for all but the best may have dipped, but they’re still well above what they were just a few years ago. And while the number of deals slowed significantly, the second half of 2022 was still 19% higher than the previous 5-year average.”

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