Don’t shortchange yourself and your
fellow shareholders by buying into a myth
The serial acquirers of insurance brokers have often worked on hundreds of merger and acquisition (M&A) transactions while an owner is likely to have never completed or been part of one.
By James Graham, CVA
It is common for insurance agency owners to say things like “my business is unique” or “we do things differently” or “we provide better service than others.” They say these things because they want to communicate to others that they have built something that is uniquely valuable to the clients they serve. In MarshBerry’s experience, most agency owners believe that their business is different and should be viewed through a unique lens.
In contrast to this public statement and belief, often their actions when it comes time to realize the value of their firms in a sale speak otherwise.
For example, agency owners often inquire what the average multiples are in the market. While this statistic might be interesting as a macro pulse for valuation trends, it says little to unique value of a particular firm. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and revenue multiples are often not comparable in conversation.
This information is often used as a marketing tool by buyers to convince sellers that they are receiving a market or above-market price when, in fact, they may be looking at an offer that is over 30% below their maximum potential.
The process of positioning one’s business for maximum value is intense and requires expertise and experience that an agency owner typically will not possess. The serial acquirers of insurance brokers have often worked on hundreds of merger and acquisition (M&A) transactions while an owner is likely to have never completed or been part of one. This experience and knowledge mismatch means that acquirers have significant negotiating leverage in a transaction where an agency owner doesn’t have a skilled advisor.
An agency or brokerage owner who enters into a deal without a skilled advisor is manifesting that they do not believe their firm is unique. They are shortchanging themselves and their fellow shareholders by buying into the myth that firms generally trade at a standard market value expressed by a simple heuristic like an average EBITDA or revenue multiple.
M&A MARKET UPDATE
The 303 announced insurance distribution M&A transactions in the U.S. through June is an 11.8% increase in total deals compared to the same time in 2023, which ended Q2 with 271 announced transactions.
Private capital–backed buyers accounted for 226 (74.6%) of the 303 transactions through June. This represents a substantial increase since 2019, when private capital–backed buyers accounted for 59.3% of all transactions.
Independent agencies accounted for 42 deals so far in 2024, representing 13.9% of the market, a slight decrease from 2023, when independent agency acquisitions represented 15.6% of the market.
Transactions by bank buyers continued to fall as a percentage of overall deals, declining from 18 total transactions in 2022 to nine total transactions in 2023—an all–time low. Bank buyers have recorded only two transactions in 2024, representing less than 1% of the market.
Deal activity from the top ten buyers accounted for 51.8% of all announced transactions through June, while the top three (BroadStreet Partners, Inszone Insurance, and Hub International) accounted for 26.4% of the 303 total transactions.
For comparison, the top ten buyers in all of 2023 accounted for 41.9% of total transactions, with the top three representing 16.2%.
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.
A skilled advisor doesn’t just take the stated or hastily adjusted financials of your firm and mass market them to see what sticks. A skilled advisor rolls up their sleeves and learns everything about your business to allow them to best position your business for the maximum valuation possible.
They also help owners differentiate between the different trades-offs they will be asked to decide between. For example, what risks is an owner taking by taking equity in a particular acquirer? What is the right long-term compensation package for employees and owners post-closing? What is the company culture of a particular buyer? Or how does a particular buyer provide synergies to help their acquired firms hit their earnouts?
The list of key deal points and the number of ways acquirers seek to shift risk and value in their favor is long.
As an insurance agency owner, you have spent your whole career building a unique and valuable business and you will likely only get one chance to realize the value of your life’s work. Don’t pay for the represented deals by believing that knowledge of a few industry stats will protect you from leaving material value on the table.
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.
