Insurance brokers buying bottom-shelf M&A targets; take minimal gains

Insurance brokerages are wasting money chasing stale M&A deals for second-rate targets that can only provide buyers with a short-term boost to organic growth, a key global equity brokerage has warned investors.

“After thousands of these deals have been consummated over the past decade, it seems strange that there are still more attractive bolt-ons to acquire,” analysts at Bank of America Securities claimed in fresh research.

The count of some 250 such deals in the US in 2021 is “not outsize” versus the running trend, leaving analysts to wonder what could possibly be on the market after such a run.

“Our general sense is that the best brokerages were acquired early in this long-term roll up, and many of the deals done today are completely average in nature, but make sense while financing is cheap.”

With principals in acquired firms held on board for neighborhood three years via earn-out performance inducements, companies may be buying a mid-term boost to organic growth that turns to a long-term drag on growth once principals head for the door and talent considers striking out on their own, BofA speculates.

That would open the door, BofA analysts even seem to suggest, for a worst-case scenario in which “serial acquirers” get stuck in a vicious circle of possibly buying and rebuying the very same talent over the years.

“The point to emphasise we believe is that organic growth is strongest for the newest acquisitions and growth likely slows in time,” analysts wrote.

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