Insurance agency M&A activity down 10% through Q3, Optis reports

Insurance agency mergers and acquisitions were down 10% through Q3.

By Staff Reports

The Jubinville Insurance Group, based in South Hadley, Mass., closed a deal last week to join Wheeler & Taylor Insurance, the oldest independent insurance agency in Berkshire County.

The partnership expands Jubinville Insurance Group’s opportunities for its clients, offering additional markets and new specialty insurance programs, the agencies said in a news release.

While not a major agency transaction, the small deal represents the state of merger-and-acquisition activity as 2024 nears a close.

There were 535 announced insurance agency mergers and acquisitions through three quarters of 2024, down 10% from 594 in the same period in 2023, according to OPTIS Partners’ M&A database. Deal activity is now 11% below the previous five-year average.

“Nevertheless, we’ve seen two quarters of increasing deal count after six consecutive quarters of the count falling,” said Steve Germundson, a partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “While two quarters do not a trend make, we believe that we’re at or near the bottom of the deal-flow trough.”

In Q3, 198 deals were announced, up 14% from 173 in Q2 and up 21% from 164 in Q1.

Founded in 1871, Wheeler & Taylor, Inc. is one of America’s oldest continuously operated financial companies. It has 11 offices in Western Massachusetts and Connecticut.

The Jubinville move is a win for all parties, said Wheeler & Taylor President J. Scott Rote.

“By partnering with us, Jubinville Insurance can do even more for its personal and business customers,” he said. “Local decision-making combined with national resources creates a unique opportunity for our partner agencies to preserve their heritage and commitment to the local community while at the same time significantly expanding their access to a broadened marketplace of insurance carriers, knowledge to insure nationwide, and commercial expertise allowing for expanded product offerings.”

The 'new normal'

The drop in M&A activity is not entirely a new trend.

OPTIS managing partner Timothy J. Cunningham described the new M&A market: “Some may call the deal flow today as the ‘new normal’ though we’re more likely to call it the ‘old normal.’ Deal volume is still off from the peak, but it is also still above pre-2021 flow.”

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 its dominance with 73% of all acquisitions for the quarter, while transactions between private parties accounted for 17%. Publicly held brokers and all others accounted for just 10% of deals, OPTIS said.

Among the most active buyers in 2024, BroadStreet Partners led the industry with 68, which is 51% higher than what it recorded in the same period last year and twice its previous 5-year average.

Hub and Inszone followed with 39 and 38 deals, respectively. While Hub’s pace of deal-making is 13% below the prior year, Inszone’s pace has increased significantly each year since 2020 when it did four deals. Patriot Growth rounded out the top four and nearly doubled its transactions over the prior year.

There were 87 unique buyers in insurance-distribution-related businesses through the first three quarters of 2024, 71 of which did fewer than ten transactions and 41 of which did just one. Twenty-five of these firms announced their first acquisition.

The 10 most active acquirers accounted for 292 deals (55% of the total). All of these were private equity-backed firms other than Leavitt Group (private) and Arthur J. Gallagher (publicly traded).

P&C agencies attractive

The report covers four types of sellers: property and casualty insurance agencies; agencies offering both P&C and employee benefits; employee benefits agencies; all other sellers.

P&C sellers accounted for 349 transactions (65% of the total). Benefits agencies sales totaled 75 (14%), and there were 52 sales of P&C/benefits agencies (10%). All other sellers accounted for 59 sales (11%). Firms that fall into the life insurance/financial services area are included in the “other” category and did 18, or 3%, of the total transactions, OPTIS said.

“We continue to see a large number of potential sellers in the industry, both long-established agencies owned by baby boomers as well as those that started up in the last five to 10 years. That certain level of regeneration is an interesting dynamic, and often those firms are showing real organic growth,” Germundson said. “A stabilizing economy is also empowering buyers, both established and those looking to enter the market.”

Cunningham pointed out: “We see more significant changes in the buyer community to come. On the heels of some large acquisitions in 2024 such as AON’s purchase of NFP and Marsh McLennan Agency’s announced acquisition of McGriff Insurance Services, we look for more large deals to be announced as the big firms chase growth.”

In addition, there likely will be several recapitalizations of private equity-backed firms following in the footsteps of Axis Insurance Managers and Sunstar Insurance Group earlier in 2024, he predicted. Most likely a couple more agencies will be going public, as The Woodlands Financial Group did earlier this year.