In today’s M&A marketplace, owners
often are motivated by factors beyond price
[E]nsuring alignment between a seller’s fundamental
motivations and a potential buyer’s capabilities is a key to maximizing value … .
By James Graham, CVA
The rapid pace of consolidation in the insurance brokerage system has created vast amounts of wealth for both sellers and buyers. While some might think that independent agency owners are driven to sell primarily for financial gain, the reality is that money often ranks low on their list of criteria for making the decision to sell, as well as choosing a buyer. It’s not that owners want to accept a discount on their firm’s value; rather, they are motivated by factors beyond price.
Below is a list of reasons and priorities that owners consider when deciding to move forward with the sale of their business:
- Lack of next-generation leadership. Many agency owners face challenges with the next generation’s ability to purchase and operate the agency. The absence of long-term succession planning is a primary reason agencies seek to partner with outside firms. Too often, agency owners have their heads in the sand until it’s too late, and the problem has only one viable solution.
- Desire to focus on sales over management. A significant segment of agency owners becomes burnt out on managing the day-to-day headaches of running a business—such as HR, accounting, and IT issues—while they thrive on selling insurance. This group of sellers is often a prime target for larger consolidators.
- Ability to move up market. Some agency owners look to partner with a larger platform to secure bigger and more sophisticated accounts. This group is typically driven by a desire for continuous improvement. When they hit a wall and realize that the primary thing holding them back is a brand and capability mix that a larger platform can offer, they often use this insight as the driving reason to sell their firm.
- Securing employee futures. Partnering with a larger broker that has significantly more infrastructure can provide employees with better career opportunities and job security. Owners often feel a strong sense of responsibility for their workforce and look to a partner who can help support their team.
- De-risking. While the fundamentals of insurance distribution are robust, it is not risk-free. Many owners choose to sell their firms to take chips off the table and de-risk their wealth. If an owner senses market or client distress, they may seek a partner to help protect their position and foster growth amid potential challenges. A savvy owner looks to partner and de-risk when they don’t have to; it becomes challenging to secure a good deal if the business is in crisis.
Sellers are looking for great platforms that align with their culture and values, helping them achieve their goals while caring for their employees. The phrase “I don’t need the money” is common among sellers, and ensuring alignment between a seller’s fundamental motivations and a potential buyer’s capabilities is a key to maximizing value—not just in terms of price, but also in achieving long-term positive outcomes for all stakeholders.
The author
James Graham joined MarshBerry in 2015 and is a director on MarshBerry’s Financial Advisory team in its Dana Point, California, office. His expertise includes merger and acquisition advisory, capital raising, business valuation, perpetuation and succession planning, and strategic planning. James provides his clients with customized financial and capital strategies to help them accomplish their goals. He also is a facilitator for MarshBerry’s Connect Network and actively publishes articles relevant to the insurance distribution marketplace. Prior to joining MarshBerry, James was a senior consultant with Deloitte Consulting LLP.
James currently maintains the FINRA Securities Industry Essentials (SIE®) Exam in addition to the Series 62, 79 and 63 FINRA Registrations through MarshBerry Capital, LLC, the affiliated FINRA-registered broker-dealer of Marsh, Berry & Co., LLC. He earned a Bachelor of Science in Finance from Azusa Pacific University and a Master’s in Business Administration (MBA) from George Mason University. He is also a Certified Valuation Analyst (CVA). Contact him at (949) 272-0351 or James.Graham@MarshBerry.com.
M&A MARKET UPDATE
As of September 30, 2024, there were 490 announced merger and acquisition insurance brokerage transactions in the United States. Activity through September is trending 8% higher than the start
of 2023, which saw 454 transactions announced through this time last year.
Private capital-backed buyers accounted for 358 (73.1%) of the 490 transactions through September. Independent agencies were buyers in 83 deals or 16.9% of the market. Transactions in which banks were buyers continued to fall, declining from 18 transactions in 2022 to nine transactions in 2023—an all-time low. So far in 2024, bank buyers have completed four acquisitions.
Deals involving specialty distributors as targets accounted for 82 transactions or 16.7% of the
total 490 deals in 2024–a 5.7% percent decrease in transaction share over 2023. This decrease
in percentage share in 2024 may be a trend to watch.
The top ten buyers accounted for 51.8% of all announced transactions, while the top three
(BroadStreet Partners, Inszone Insurance, and Hub International) account for 24.9% of the
490 total transactions.
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.
