The current market for insurance agency mergers and acquisitions continues to favor sellers, with a growing number of acquirers keeping demand high, according to Reagan Consulting.
"Demand, in terms of the number of well-capitalized buyers, has never been higher, and new acquirers continue to enter the market at a remarkable pace. Competition for deals remains white-hot," said Tom Doran, partner at Reagan Consulting.
Speaking recently at the Agency Ownership Summit in Atlanta, cosponsored by Reagan Consulting and the Council of Insurance Agents & Brokers, Doran noted that deal activity remains at historic highs, with nearly 1,000 agency deals in the past two years.
The largest groups of agency buyers, as of the first quarter of 2017, are private equity firms, followed by privately held brokerages, he said. "With a finite number of quality sellers and a seemingly infinite number of buyers, valuations remain at historically high levels," Doran said.
Robust public broker valuations are also helping to elevate private broker valuations. In the first quarter, the publicly traded brokers' valuations were 12.7 times EBITDA (earnings before interest, taxes, depreciation and amortization), above the historical multiple of 9 to 11 times EBITDA, Doran pointed out.
Agency valuations may have reached their peak, however. "Valuations appear to have settled in at a high-water mark. We are no longer seeing the steady increases in agency valuations that have accompanied this acquisition bull market since it began in 2010," he explained. That said, Reagan Consulting does not expect to see valuations decrease significantly until some of the pressure is relieved on the demand side. "Until buyer demand decreases -- which might occur with an increase in interest rates, reduced debt or capital availability, or a decrease in public broker valuations - we are unlikely to see agency valuations decrease materially," Doran said.
About Reagan Consulting: Reagan Consulting is a management consulting firm providing strategic consulting, valuation, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm's services for publicly owned and privately held independent insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Organic Growth & Profitability benchmark survey.
- 2016 FMO Executive Outlook, Part I: The M&A climate, planning for the DOL Fiduciary Rule, other key challenges
- Prudential restructures U.S. life and annuity business in effort to expand customer value proposition
- What it takes to be an ‘Agent for the Future’
- Wearables and telematics on verge of huge impact in P&C markets
- Next wave of fee-based FIAs hit the market
- How great credit/no credit impacts auto insurance premiums
- 4 Real Life Stories: Life Happens honors agents for exhibiting outstanding client service
- Optional benefits: Changing a ‘no’ to a ‘yes’