Avoiding detrimental effects
on future value and long-term potential
In the rush to build brokerages and capture record
valuations, shortcuts may drive short-term
growth but ultimately erode equity value and long-term viability.
By James Graham, CVA
In their pursuit of growth, many insurance brokerage entrepreneurs sacrifice long-term value for short-term revenue, often by being overly flexible with producer terms and compensation. The logic often assumes that any incremental revenue or profit is a win, regardless of how it’s earned. For example, some common shortcuts for growth include offering high commission splits to attract producers, allowing alternative employment status such as 1099 arrangements, sharing contingent commissions, excessive car allowances, and a lack of restrictive covenants.
While the occasional exception might not sink the ship, leaders that manage their firms by chasing every incremental dollar greatly reduce their firm’s value and stunt their growth potential.
The best-performing firms tend to be less flexible and they clearly define what it means to be a producer. They operate integrated firms where the benefits of scale can be felt by their producers and clients. They tend to have uniform compensation plans, sales plans, CRMs, and go-to-market strategies.
The lack of exceptions allows them to focus and direct the firm to best serve their target clients. In contrast, firms that grow via individual deals with no cohesive strategy struggle to maintain growth and quality service.
In MarshBerry’s experience, firms that lack a cohesive plan run into the following issues:
- They attract lower-quality producers that focus on their past work instead of continuing to grow.
- Margins come under pressure as the cost of service and infrastructure often grows faster than their revenue.
- Above-market compensation is a lien against their firm’s equity value. If the firm wants to monetize their equity, they have to right-size compensation and that will likely be expensive.
- They lack a cohesive culture that attracts and retains younger talent.
- Insufficient training and support infrastructure exists for younger talent.
- They have a complicated equity story that is hard to define for the firm, given the lack of a cohesive vision and strategy.
In the rush to build brokerages and capture record valuations, shortcuts may drive short-term growth but ultimately erode equity value and long-term viability. These shortcuts can have detrimental effects on future value and significantly cap a firm’s long-term potential and viability.
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 James.Graham@MarshBerry.com or (949) 272-0351.
SIDEBAR:
M&A MARKET UPDATE
As of September 30, 2025, there were 513 announced M&A transactions in the United States for the year. This activity through the end of September is up 4.7% when compared to the same time last year, which saw 490 transactions announced through September.
Private capital-backed buyers accounted for 370 (72.1%) of the 513 transactions in 2025. This represents a substantial increase since 2019, when private capital-backed buyers accounted for 59.3% of all transactions.
Independent agencies were buyers in 73 deals so far in 2025, representing 14.2% of the market. There have been seven announced transactions by bank buyers in 2025.
Deals involving specialty distributors as targets accounted for 82 transactions, or 16% of the total acquisitions in 2025. This percentage share is in line compared to the 15% in 2024, continuing the trend of a low supply of specialty firm sellers.
Valuations remain strong for high performing firms
Driven by continued demand for high performing firms with strong organic growth and high margins, the first three quarters of 2025 maintained elevated valuations for both the average of all firms and for platform firms. When compared to 2024 levels, valuations through Q3 2025 are basically flat for the all-firm average and platform firms.
Valuations as a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) on upfront base purchase price for the last twelve months (LTM) ending Q3 2025 came in at an average of 11.45x across all firms. Platform firms for LTM ending Q3 2025 are averaging 13.84x at closing.
While platform base purchase price has slightly dipped from 2024, maximum enterprise value has increased. Given margin of error, platform valuations have continued to remain static over the past three years.
There may be continued pressure on valuations for firms who are not able to generate organic growth outside of rate or exposure base expansion. Firms that are able to generate sales velocity in the mid- to high teens should still command aggressive valuations, as the buyers are continuing to look for ways to enhance their own organic growth metrics.
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.
