Merger & Acquisition Activity Continues to Climb

Acquisition activity for the first quarter of 2015 reached 90 deals, a record for the first three months of the year. We saw the same number of transactions announced during the fourth quarter of 2014, typically the most active quarter of a year. Continuing the momentum from one of the most active years, January came in strong with 47 deals. February followed with 23 and March with 20.

Buyers are prudent but continue to look for the right partner to satisfy their own growth goals. In the first quarter, private equity-backed and independent agencies accounted for 59 deals or 66 percent of the total activity. Public brokers completed nine deals, or 10 percent of the total. Banks, insurance companies and other buyers completed the remaining 24 percent of acquisition activity.

The sellers were skewed heavily toward property/casualty firms, with 61 percent of the total deal volume during the first three months of the year falling within this category. Multi-line agencies, those with both property/casualty and employee benefits, were targets of 28 percent of the deals while employee benefit-only firms comprised 11 percent of the total. Typically, employee benefit-only firms represent about 25 percent to 30 percent of all deal activity.

While activity was down in the first quarter for this segment of the market, there does not seem to be a shortage in demand for the highly consultative, resource-rich benefit firm.

Retail agencies comprised 82 percent of all deals with the specialty distribution segment taking the other 18 percent. Specialty distributors were broken down between program administrators (12 deals) and wholesale brokers (four deals). Program administrators include managing general agents (MGAs) and managing general underwriters (MGUs). While there does not seem to be a specific concentration of buyers seeking these specialty distributors, the buyer, whether a regional or national player, typically has established capabilities in this space.

The top six buyers completed 26 percent of all deal activity for the first quarter of 2015. Among those in this group, not surprisingly, were the top five buyers of 2014. Tied for the top spot was Arthur J. Gallagher & Co. (Gallagher) and AssuredPartners Inc., each with five announced acquisitions. Gallagher completed a mix of retail and specialty distributor deals, and AssuredPartners continued its aggressive growth with property/casualty and multi-line retail firms.

Private equity-backed Confie Seguros further strengthened its geographic footprint with the acquisition of four retail personal lines agencies. Brown & Brown Inc., Acrisure and Hub International Ltd. rounded out the top six, each announcing three U.S.-based deals. The remaining 67 deals were completed by 61 different buyers.

We expect activity to reach new heights in 2015 as the industry builds on the momentum from the recent past. With organic growth remaining difficult, buyers continue to deploy high levels of excess capital and put their resources to work on the acquisition front.

Strategic buyers have a growing interest in the market, and if the large deals we saw over the latter part of 2014 are any indication, the supply of available agencies, especially larger ones, may be increasing. Whether an experienced acquirer or a new buyer, agencies are looking to enhance their capabilities, achieve greater scale, and solidify their presence in the market.

Securities offered through MarshBerry Capital Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co. Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440-354-3230). Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation. Past performance is not necessarily indicative of future results.

Topics Mergers & Acquisitions Agencies Excess Surplus Insurance Wholesale Property Casualty