Agency M&A Landscape

Insurance Journal recently had a chance to chat with executives from MidCap Advisors, a New York-based mergers and acquisitions firm. The firm focuses on small- and mid-size brokers and agencies, offering advice on issues ranging from raising capital to selling and buying businesses.

In an interview, the executives shared their thoughts on the M&A landscape and what potential buyers are looking for. (You can read the complete interview at www.InsuranceJournal.com.)

“The buyers are the usual suspects. You have the top-tier insurance brokers, the Brown & Brown’s, Gallagher’s, Willis’s, USI’s of the world,” said Frank Robertson, the firm’s vice president. He said he’s also seeing “a resurgence of bank interest” in the insurance-agency model.

The executives told us that M&A departments of the top-tier brokers are facing a lack of quality acquisition opportunities in the market. This means that when buyers do find good opportunities, they’re willing to pay up for them.

So, what types of agencies represent good opportunities? Not surprisingly, M&A departments like agencies that are demonstrating good organic growth. “They like agencies that have competent managers,” Robertson said. “But most importantly, they like agencies that have an established sales culture. They use it to compensate their producers, incentivize them to continue to go out and continue to bring in new business, as opposed to sit on their existing books.” Buyers also usually look for agencies with a good mix of personal and commercial lines of business and a relatively-low customer churn.

On the other hand, employee benefit agencies with a focus on insuring groups of less than 50 have been seeing their valuations come down, “and I see buyers staying away from that,” Robertson said.

Another important element is the cultural fit, MidCap Advisors Partner John Poppe said. “It’s probably one of the first things they look at to determine, is this a transaction that has a high probability of closing? Because most of the transactions will have an ongoing performance evaluation component to a deal structure, and the cultural fit will be an important part of maximizing the value for the seller and also the synergies that are realized by the buyer.”

And even among good acquisition candidates, firms that are getting bought are those that are ready – meaning that their information is prepared, is well laid out, and allows an active acquirer to go in with their team and to evaluate the opportunity and to make a decision pretty quickly if this is a type of firm they would like to acquire or not, Poppe said.

They also offered advice to owners with business partners who are looking to potentially sell their agency. “If you’re in a situation where you’re the majority shareholder and you have minority shareholders, make sure that everyone’s interests are aligned prior to entering into conversations with buyers,” Robertson recommended.

Topics Mergers & Acquisitions Agencies