WINNING THE M&A GAME IN 2025

Key strategies agencies can deploy

For independent insurance agency owners, it’s likely the best

time in the past decade to execute a local merger and acquisition (M&A) strategy.

By James Graham, CVA

Elevated, albeit historically normal, capital costs coupled with high valuations are forcing serial acquirers and new entrants to exercise increased effort to generate acceptable returns. The days of stacking revenue with little thought to the long-term strategy of the business is likely behind us. Further, the largest brokers continue to get even larger by acquiring each other and, in turn, providing more agents best-in-class resources and support.

In the past, sellers often stated, “We don’t want to change anything about our business.” Today, however, the primary reason many are considering a sale is their need for resources and support to remain competitive.

For independent insurance agency owners, it’s likely the best time in the past decade to execute a local merger and acquisition (M&A) strategy. The largest buyers are now more focused on quality firms than ever before and are unwilling to allocate resources to agencies that don’t provide clear value to their platforms. Additionally, an increasing number of firms are looking to the public markets as their next capital move, where lower leverage ratios and integrated businesses are a necessity.

This shift is significantly slowing the pace of some historically prolific acquirers. However, a new generation of private equity-backed acquirers is stepping in to fill the gap, keeping valuations high. These newer acquirers tend to have a regional or niche focus, leaving many smaller agencies open for acquisition by local independent agencies.

M&A MARKET UPDATE

The preliminary M&A numbers are in for 2024—but stay tuned for further updates as many buyers delay calendar year announcements.

As of December 31, 2024, there were 849 announced M&A transactions in the U.S., a 5.2% increase compared to the 807 deals announced in 2023. This makes 2024 the third highest year on record for M&A transactions.

Private capital-backed buyers accounted for 595 (70.1%) of the 849 transactions in 2024. This represents a substantial increase since 2019, when private capital-backed buyers accounted for 59.3% of all transactions.

Deals involving specialty distributors as targets accounted for 121 transactions, or 14.3% of the total acquisitions in 2024. This percentage share is down compared to the 22% in 2023 and a reversal in the three-year trend of increasing percentage share for specialty distributors. The prevailing theory ascribes this decline to a lack of specialty firm sellers rather than a shift in buyer interest, as quality specialty firms continue to fetch premium multiples.

Independent agencies were buyers in 163 deals in 2024, representing 19.2% of the market, a notable increase from 2023, which saw independent agencies represent 15.6% of the M&A market. Transactions in which banks were buyers remained low, declining from 18 transactions in 2022 to nine transactions in 2023, and stayed level in 2024 with 10 transactions.

Deal activity from the top ten buyers in 2024 accounted for 43.3% of all announced transactions, compared to 41.9% in 2023. The top three buyers in 2024 are the same three from 2023: BroadStreet Partners, Inszone Insurance, and Hub International. These buyers accounted for 21.6% of the 849 total transactions in 2024, compared to 16.2% in 2023.

Investment banking services offered through MarshBerry Capital, LLC, Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co., LLC. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122; (440) 354-3230. Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. Scorecard year-to-date totals may change from month to month should an acquirer notify MarshBerry or the public of a prior acquisition. Statistics are preliminary and may change in future publications. Please feel free to send any announcements to M&A@MarshBerry.com. Source: S&P Global Market Intelligence and other publicly available sources.

Given this evolving landscape, below are key strategies that independent insurance agencies can deploy.

• Size matters. Smaller agencies in certain geographies or niches do not have the same valuation and demand as larger firms. Firms that consist of a single owner producer and have less than $500,000 in revenue are ripe for a local quality independent agency to acquire.
• Build resources and expertise. Independent agencies may not be able to compete on price, but they can offer a platform that smaller local agencies will find valuable in acquiring and retaining clients.