Despite expectations, insurance industry M&As continue to decline

An expected pickup in insurance industry mergers and acquisitions has not yet materialized as the landscape saw a continuing and significant decrease in the first half of this year.

According to OPTIS Partners' M&A database, there were 300 announced transactions, which is a 20% decline from 385 agreements registered during the same period in 2023. This is the lowest first-half total in four years, with a 26% drop from the previous five-year average. Furthermore, the deal count has slipped below the long-term trend line for six consecutive quarters.

Signs of M&A 'deals in waiting'

While it might seem the trend could continue, there are signs there are deals in waiting.
"We could be only at the beginning of a longer slide, but it seems unlikely," said Steve Germundson, a partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. "A large number of purchasers are still wanting to invest funds, and there are still a significant number of independent agencies that are unable to internally perpetuate their ownership. So, we could be reaching a 'normal' level of deal-making, similar to what we experienced between 2017 and 2019.”

For now, OPTIS said, a number of previously active purchasers have been idled, with only a few stepping up the pace.

BroadStreet Partners emerged as the most active buyer, with 46 transactions in the first half of 2024—a 77% increase over the same period last year. Inszone and Hub followed with 27 and 26 transactions, respectively. Hub's deal-making speed has been steady in recent years, whereas Inszone has seen an annual increase in activity since 2021.

The top 13 buyers accounted for 193 deals, or 64% of the total. Notably, all but two of these top buyers were private equity-backed enterprises, with the Leavitt Group privately held and Arthur J. Gallagher publicly listed.

62 buyers reported in first half of 2024

In the first half of 2024, there were 62 unique buyers of insurance-distribution-related enterprises, with 41 completing fewer than five transactions and 26 completing only one. Among these, 14 companies announced their first purchase.

The report categorizes American and Canadian purchasers into four groups: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and others. The private equity-backed/hybrid group dominated with 71% of all transactions, followed by private party transactions at 20%. Publicly traded brokers and others accounted for only 7% of total transactions.

For sellers, the report lists four M&A categories: property-and-casualty property and casualty insurance agencies, agencies that provide both P&C and employee benefits, employee benefits agencies, and all other sellers (including life/financial services, consultancy, and other insurance-related firms).

P&C sellers contributed for M&A 198 transactions, or 66% of the total. Benefits agencies sold 34 (11%), while P&C/benefits agencies sold 33 (11%). All other merchants made 35 sales (12%).
"If inflation falls and the Fed decreases rates between now and the end of the year, buyers may become more active,” said Germundson. “This market remains supply-side driven."

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].