Successions Spark Agency and TPA Mergers

Generational turnover is fueling a significant rise in insurance agency and third-party administrator (TPA) mergers as those businesses carry out succession plans.

Insurance agency and TPA mergers rose to 349 transactions last year, a 9 percent increase over the year-ago period, according to an analysis by Tiburon Advisors.

And the consulting firm said those mergers are expected to continue rising.

Insurance agency and TPA transactions previously peaked in 2012 when 325 deals were recorded. The number of insurance agency and TPA-related deals far surpasses the number of investment agency, or registered investment advisor (RIA) deals, Tiburon Advisors found.

There have been between 224 and 349 insurance agency and TPA transactions in each of the previous six years, according to Tiburon’s analysis of data from National Underwriter and Marsh Berry. In 2005, there were an estimated 205 insurance agency and TPA-related transactions.

Agency owners are aging and leaving the business, sometimes involuntarily, said Chip Roame, managing partner of Tiburon Advisors. He spoke during a webinar Thursday titled “Financial Advisor Succession Planning & Acquisition.”

“Plus, there are 20-30 aggregators in the insurance agent market offering attractive ongoing employment models with some upfront cash for the business valuation,” Roame said in a follow-up email.

Mergers and acquisitions processes involving insurance agencies and TPAs are more formalized compared with the RIA segment. Big aggregators in the insurance agency world include NFP, Brown & Brown and Marsh & McLennan Agency.

Some insurance agency aggregators have done 50 or more transactions over the past few years, which means agency valuation models and financial metrics used to evaluate potential mergers are better defined than in the RIA segment, Roame said.

Too many financial advisors and insurance agencies — of which there are thousands around the country — are ill prepared for succession planning. “Nobody likes to plan for their demise,” he added.

Still, the RIA world has plenty to learn about succession planning from insurance agency and accounting firm transactions.

For example, on matters such as whether it is more valuable to settle for equity rather than a cash payment, details surrounding deal terms, and how to work in larger organizations that remain entrepreneurial.

“The RIA is way behind the game here when you look at CPAs and insurance agencies that are doing hundreds of transactions a year. They are way ahead,” Roame said.

There were an estimated 195 financial advisor-related mergers in 2015, up from 186 transactions in 2014.

But this year, the number of financial advisor-related deals is expected to rise to 250. By 2019, Roame forecasts investment advisor transaction to reach as many as 500, as advisors, facing retirement and tougher regulation, look for exit strategies.

“Financial advisor mergers and acquisitions will boom,” he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].