COVID-19 Cuts Into Insurance Agency M&A Dealing – InsuranceNewsNet

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July 17, 2020 Top Stories No comments
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COVID-19 Cuts Into Insurance Agency M&A Dealing

By John Hilton

Insurance agencies remained hot properties in 2019, with another record year of merger-and-acquisition activity, but activity appears to be slowing due to COVID-19.

OPTIS Partners released first-half M&S data this week showing a slowdown on insurance agency activity.

There were 288 announced insurance agency M&A deals during the first half of 2020, down from 328 in 2019, according to OPTIS. It was the lowest six-month period total since 2017.

"Some of the active buyers continued to push forward with their M&A strategy while others have slowed their acquisition pace until more is known about the impact and duration of the pandemic," said Timothy J. Cunningham, managing partner of OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

OPTIS breaks down 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 increased their share of all transactions compared to the first half of 2019, accounting for 69% of all transactions vs. 65% last year.

P&C sellers accounted for 143 of the total 288 transactions (50%), consistent with their percentage of the totals in recent years, OPTIS reported.

"We expect the slow-down to continue given the recent explosion of the COVID-19 infections and anticipated reinstatement of various social and business restrictions," said Daniel P. Menzer, partner.

Dealing In 2019

Prior to the COVID-19 pandemic, insurance agency M&A was a robust market.

A total of 649 M&A deals were closed in 2019, up 40% from 2016, said Chip Roame, managing partner of Tiburon Strategic Advisors. Tiburon includes insurance agencies and third-party administrators among its financial advisor M&A statistics.

Accrisure led the way with 98 acquisitions in 2019. The company touts itself as "the industry’s fastest-growing insurance broker, delivering high-quality insurance and risk management services and solutions through our global network of Agency Partners."

Accrisure has closed 410 M&A deals since 2015. Hub International is in second place, with 51 deals in 2019 and 241 since 2013.

Overall, the financial services industry is seeing soaring M&A activity across sectors, Roame pointed out. In the financial advisor world, a total of 1,033 M&A deals were closed in 2019, up from 699 in 2016 and 414 in 2013.

There were 133 independent advisor M&A deals last year, up from 103 in 2018 and just 54 in 2014.

When you factor in the number of advisors expected to retire over the next decade, these numbers will likely climb much higher, Roame said.

"Could this number be 5,000 a year in a few years? Yeah, it could," he said. "That would be what the data would suggest, that this number has to keep going up. Because advisors, a lot of them are baby boomers and they're going to sell their businesses, or they're certainly going to retire and they're probably going to sell their businesses."

Among fee-based financial advisors (RIAs), there were 123 M&A deals in 2019, also a record high. Roame expected this number to go much higher.

"My guess is five, 10 years from now, this number might be 1,000 per year," he said. "I think we're at the early stages of this trend right now. So certainly it's a slope up, but I don't think 123 transactions is all that many in the big scheme of life."

Predictions

Roame included a trio of predictions for the insurance world:

  • "Moderate growth" in the numbers of insurance agency and third-party administrator firms being acquired going forward.
  • Insurance agencies will be the primary targets.
  • Retail banks to return as the most frequent acquirers.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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