Deals For P&C Agencies See Deeper Dip in Q2-2023

Deals for property & casualty and benefits brokers in United States and Canada dip 24% in first half, OPTIS Partners reports

Mergers & acquisitions across the country were down 24% for Q1-2023 as compared to the same time last year warned OPTIS Partners in its latest quarterly report. .

“The drop-off in deal count continues as we move through 2023, which isn’t surprising anyone if for no other reason than the cost of capital has increased so much,” said Steve Germundson, a partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

According to the Chicago-based firm, there were a total of 359 announced insurance agency mergers and acquisitions in the first half of 2023, down from 475 during the same time period in 2022. As illustrated below, it was the lowest first-half total since 2020 but nevertheless equal to the previous five-year average.

“We’re seeing the effects of relative inactivity of some previously very active buyers, yet others are successfully completing more deals,” commented OPTIS managing partner Timothy J. Cunningham.

Hub and Broadstreet Lead Buyers

Hub International and BroadStreet Partners recorded the most transactions in the First Half of 2023 with 29 and 26 deals, respectively. Inszone, World, and Patriot Growth followed with 22, 17, and 16 deals, respectively. As many of our readers will note, both World and Patriot Growth have made inroads into New England over the past year.

Turning to those categorized as the most historically active buyers, deal volume declined materially compared to the same period in 2022. Among those included in this category are PCF (off 98%), Acrisure (down 74%), and Highstreet Partners (down 57%).  These three firms account for over 75% of the net decrease in the number of completed transactions.  

Alternatively, active firms that picked up the deal pace in H1 2023 versus H1 2022 are World Insurance Associates (up 112%), Risk Strategies (86% higher), and Broadstreet Partners (up 62%).

The following table outlines the top 10 acquirers (including ties) so far in 2023:

BUYERBUYER TYPE201820192020202120221H-2023Hub InternationalPE-Hybrid595265627029BroadStreet PartnersPE-Hybrid343458453526Inszone Insurance ServicesPE-Hybrid2610124222World Insurance AssociatesPE-Hybrid91842533917Patriot Growth Insurance ServicesPE-Hybrid02521312716Leavitt GroupPrivate51012242014GallagherPublic363423252614Keystone Agency PartnersPE-Hybrid007222914Risk Strategies CompanyPE-Hybrid102218242413Integrity Marketing GroupPE-Hybrid46161812 Subtotal159207257304330177All Others484451548803700184Totals for Year6436588051,1071,030361

Private Equity Buyers Continue to Dominate M&A Landscape

The report breaks down American and Canadian buyers into four groups: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and all others. The private equity-backed/hybrid group of buyers maintained their dominance in the buying spree with 69% of all transactions for the quarter, while transactions between private parties accounted for 22%.  Publicly held brokers and all others accounted for just 9% of deals

P&C Agencies Dominate Sellers

Four types of sellers are covered and analyzed in the quarterly report: agencies property-and-casualty insurance agencies, agencies offering both P&C and employee benefits, employee benefits agencies, and all other sellers (life/financial services, consulting and other businesses associated with insurance distribution).

Overall, P&C sellers accounted for 214 transactions (60% of the total). Benefits agencies sales totaled 45 (12%), and there were 47 sales of P&C/benefits agencies (13%). All other sellers accounted for 53 sales (15%). 

The report notes that while the decline in deal count is somewhat broad-based,clearly the absence of previously active buyers skews the optics of this decline. 

“The nine-quarter deal bubble that began in Q4-2020 is clearly in the rear-view mirror,” Germundson said. “But we’re continuing to see interest in the buy-side from a large number of firms, and there is evidence that valuations for better firms remain strong.  If interest rates continue to rise as expected, there may be more buyers forced to the sidelines, creating opportunities for those with stronger balance sheets.”

“An active buyer community is just one part of the equation. The other part is that there is still a large number of aging agency owners who will be providing plenty of supply for the continuing demand,” said Cunningham.

How to Access the Latest Report

The OPTIS Partners report is based on its own proprietary database tracking which are the most active acquirers and other announced transactions. As such, while it is a reasonably accurate indication of deal activity in the sector, it is highly probable that the actual number of agency acquisitions was far greater than the total number reported.

One simple reason for this result is that many buyers and sellers do not report transactions at all, while other acquirers omit reporting small transactions. Access the report read by clicking the image below:

For those interested in seeing the latest merger & acquisition activity in Massachusetts and New England, please refer to our proprietary listing, which has been updated as of 1H-2023.