Merger and acquisition activity among insurance agents and brokers remains as strong as ever, despite growing general economic concerns.
Headwinds of rising interest rates, economic uncertainty and a rush by sellers to exits in 2020 and 2021 have not slowed overall deal activity in 2022, although there is some uncertainty about what the future holds.
The total number of US and Canadian transactions involving real estate agents and brokers, benefit brokers, general managing agents and third-party administrators during the first half of this year increased 14.4% to 427 from the previous all-time high of 369 during the first half of 2021 and were 23.4% above the five-year average.
On a quarterly basis, there were 233 transactions during the second quarter, 18.9% higher than the 196 reported in the same period in 2021. On a trailing 12-month basis, the actual number of deals was 1,118, significantly higher than the 1,060 reported in the whole of 2021 and 795 reported for the period of the previous year.
Buyer appetite beyond traditional insurance distribution targets has expanded over the past few years. The broad acquisition universe now has a deeper appetite with a marked increase in vendor types that includes more life insurance and financial services companies, HR consulting, actuarial services, and other ancillary businesses directly or indirectly related to tangentially with insurance distribution. So far in 2022, a total of 53 such acquisitions have been announced. The activity of previous years was not material. We will continue to monitor these transactions and report on trends as they develop. Further, we see a move among some traditionally retail-focused companies into the wholesale and software sectors.
The history of private equity firms making rapid-fire acquisitions, in some cases to accumulate as much revenue as possible, continues. The rinse-repeat nature of this strategy shows no signs of slowing down. Each of the active private equity-backed brokers saw year-over-year growth except for AssuredPartners Inc. and BroadStreet Partners Inc. In fact, PCF Insurance Services, Acrisure LLC and Hub International Ltd. increased their pace by 40% or more. and Inszone Insurance Services and Patriot Growth Insurance Services LLC more than doubled their number of closed deals.
PCF Insurance led the way, completing more transactions than all other acquirers with 48 in the first half of 2022, up from 28 in the same period in 2021 and well above its five-year first half average of 19. Acrisure followed with 43 deals in the first six months of this year, up 43% from the 30 reported in the same period last year. Hub recorded 35 transactions, out of 25, and High Street Partners Inc. recorded 20, which was two more than it recorded in the first half of 2020.
In total, the 10 most active buyers have booked 55% of the transactions announced so far in 2022. In total there were 72 buyers who completed the remaining 44% of deals, 39 of whom made more than one purchase.
Historically active buyers whose number of transactions fell below their five-year average included AssuredPartners, which reported 10 fewer; BroadStreet Partners and Arthur J. Gallagher & Co., both down three; and World Insurance Associates LLC and reported two fewer.
The number of completed deals is up in most segments, although growth in large deals — defined as targets with revenue greater than $25 million — has slowed in the past two years, largely because inventory has shrunk. There were seven such large M&A transactions in the first half of 2021, and only one — Baldwin Risk Partners LLC’s purchase of Westwood Insurance Agency — so far in 2022.
Several notable private equity-related transactions were announced in the first half of 2022. Peloton Capital Management acquired a significant minority position in Unison Risk Advisors, Carlyle Group Inc. announced the acquisition of NSM Insurance Group from White Mountain Insurance Group Ltd., and Aquiline Capital Partners announced the acquisition of a majority stake in Distinguished Programs Group LLC from management.
Data on deals so far in 2022 and conversations with buyers indicate that the second half of the year will be strong. The final figure may not be as high as in 2021, but it could turn out to be close.
Timothy J. Cunningham, Daniel P. Menzer and Steven E. Germundson are principals at Optis Partners LLC, a Chicago-based investment banking and financial advisory firm serving the insurance distribution sector. Mr. Cunningham can be reached at [email protected] or 312-235-0081; Mr. Menzer can be reached at [email protected] or 630-520-0490; and Mr. Germundson can be reached at [email protected] or 612-718-0598.