From private equity to IPO: 3 capital pathways for insurance brokerages

The insurance brokerage industry has long relied on M&A as a core growth strategy, fueled by accessible, low-cost capital and strong free cash flow generation. While recent Federal Reserve rate cuts have provided some relief, deal volume in 2024 was still down nearly 20% compared to 2023.

Despite M&A headwinds, brokers continue to face significant pressure to grow. With already high debt ratios and moderating organic growth, brokerages are evaluating alternative ways to bring in new capital sources and generate long-term value. Broadly speaking, there are three primary avenues for brokers to access additional liquidity. These are investment from financial sponsors, strategic acquisitions and initial public offerings.

1. Investment from financial sponsors (e.g., private equity)

Financial sponsorship remains the most common source of capital funding. Over the past decade, private equity (PE) firms have accounted for the majority of transactions, responsible for more than 70% of brokerage M&A activity in 2024. The brokerage model is attractive to these investors due to its predictable cash flows, strong operating margins, and capital-light structure. Additionally, unlike insurance carriers, brokers face no actuarial or interest risk, making them an appealing investment within the insurance value chain.

To secure financial sponsorship, brokers must demonstrate their ability to consolidate at scale, expand margins, and achieve double-digit growth. While common processes and integrated technology are not prerequisites, they provide a competitive advantage by driving greater operational efficiencies and revenue synergies. Beyond strong financial performance, financial sponsors prioritize the following characteristics:

Scalability – A track record of successfully consolidating agencies, centralizing key functions, and creating enterprise capabilities for new acquisitions to leverage.
Accurate reporting – Standardized data elements and reporting packages that enable performance management and transparent investment analysis.
Technology-enabled operations – A well-integrated tech stack that minimizes technical debt, enhances automation, and facilitates data-driven decision-making.

Best-in-class brokerages proactively implement standardized operating procedures (SOPs) and workflows, ensuring stronger controls, consistent processes, and accurate financials. Those that achieve a high degree of operational rigor and transparency are best positioned to command premium valuations from financial sponsors.

2. Strategic acquisitions

Strategic acquirers in the insurance brokerage industry are increasingly targeting firms that offer scalability and complementary capabilities. Additionally, they prioritize brokers with standardized processes and centralized technology infrastructures, which streamline operations and facilitate easier integration. Specifically, the key factors strategic buyers consider include:

Complementary capabilities – Brokers with unique specializations (e.g., niche industry expertise, specialized product lines, or geographical access) that enhance the acquirer’s existing operations.
Centralized functions – Brokers with centralized finance, HR, and IT functions are more attractive due to the relative ease of integration and the ability to redeploy talent across the business.
Technology-enabled Operations – A modern, integrated infrastructure that minimizes technical debt and seamlessly integrates into the acquirer’s existing tech stack.

For public company acquirers, operational and financial controls are particularly important. Best-in-class brokerages establish robust governance, documented operating procedures, security protocols, and financial & operational audit processes to accelerate integration readiness.

3. Initial public offering (IPO)

Preparing for an IPO is a significant undertaking, requiring a high level of operational maturity and rigorous controls. This pathway is typically pursued by large brokers that have outgrown alternative capital strategies. While many of the operational and technology requirements align with those of a strategic acquisition, IPO readiness requires additional maturity in three key areas:

Financial reporting – Public companies must meet rigorous financial reporting standards, ensuring timely and accurate financial statements. Beyond core financials, brokerages must provide directional commentary on operational metrics, such as renewal rates and pricing change.
Controls & compliance – Achieving SOX compliance is essential for any company preparing to go public. This requires a robust internal control framework, including segregation of duties, access controls, and regular audits to safeguard data integrity.
New corporate functions – Companies preparing for an IPO often need to establish new functional groups, such as investor relations, external communications, and risk management, while also strengthening existing teams (e.g., accounting, legal, and compliance) to handle the complexities of operating as a public company.

Taking the first steps toward capital readiness

For brokers evaluating their next capital move, the path forward starts with a clear understanding of their business and strategic objectives. The following steps can help brokerages prepare for their next liquidity event:

Assess your liquidity options – The right capital strategy depends on a brokerage’s size, growth trajectory, and long-term goals. Smaller firms may find financial sponsorship or strategic acquisition the most viable, while larger brokers may need to prepare for an IPO as alternative options become limited.
Understand the requirements for each path – Every liquidity option comes with its own financial, operational, and compliance requirements. Brokers should evaluate their current state and determine what is feasible given their existing infrastructure, resources, and culture.
Develop an actionable plan – Identifying gaps between current operations and the requirements of the chosen liquidity strategy is critical. Brokers should prioritize initiatives such as financial reporting improvements, operational standardization, or technology enhancements to increase their attractiveness to investors and acquirers.

By taking a structured approach, brokers can access new sources of capital, drive long-term growth, and confidently navigate an evolving market landscape.

Let’s Talk

We’ve helped and are actively assisting brokerages in navigating this evolving capital landscape. If you’d like to discuss further, please reach out to Rob Held, Bob Besio or Robert Green if you’d like to discuss further.