If you’re at all inclined, it’s never been a better time to put your insurance agency on the market – but you’d better act fast.
The number of insurance agency mergers and acquisitions in the first half of 2016 ranked as the second-most-active six-month period since 2008, with 232 announced deals, according to the OPTIS Partners’ M&A database. That level of activity is being driven by a number of factors, including strong buyer interest and agency valuations approaching their peak.
“If you’re an agency owner thinking about the best time to put your agency in play, consider taking action sooner than later,” said Daniel P. Menzer, partner with OPTIS. “Interest from buyers is high and agency valuations are near their peak.”
Buyers are especially interested in property/casualty shops, which represented 124 of the announced transactions. Property/casualty and benefits shops, meanwhile, represented 40 deals. There were 43 employee benefits agency sales.
The most active buyers are private equity-backed firms with 114 transactions, followed by privately-owned brokers with 68 deals. Publicly-traded brokers announced 24 deals and banks announced 15. Insurance companies and other buyers were less active this year compared with the same period last year and remain relatively inactive.
While this is good news for those on the selling side, agencies interested in expanding their presence would do well to crunch the numbers and do due diligence in their valuations.
“A premium price paid for acquisition can have significant adverse implications on the long-term viability of your agency,” Menzer said. “If the agency you buy does not perform up to snuff and you do not have the capital base to absorb the shortfalls, you can get in a lot of trouble.”
Agency M&A activity has climbed steadily since 2012, and Tim Cunningham, managing director of OPTIS, anticipates the “strong industry-consolidation trend” to continue – at least in the near term.
“I think it’s three things. We’ve got an aging ownership base that reflects the demographics of America, and you’ve got an increasing inventory that needs an exit,” Cunningham told
Insurance Business America in an earlier interview. “You’ve also got a well-capitalized buy-side group led by private equity firms. It’s the perfect storm.”
Cunningham believes the agency sector will continue to consolidate, decreasing 20% to 30% in size in the next 15 to 20 years.
Proponents of the sector need not worry, however.
“I think that level of consolidation is a good thing,” Cunningham said. “There are a handful of inefficiencies in the system that consolidation will strip out, and we’ll still have the same number of people in the sector.
“It’s a natural progression.”
Related stories:
Insurance agencies break record for mergers and acquisitions: Report
Producer turned M&A consultant says it’s all about playing to your strengths
