US insurance sector likely delivered second best M&A year on record

M&A in the broad insurance sector across the US may have fallen by some 23% from a peak in 2021, but still stands likely to become the #2 year on record as word of last-minute deals trickle in, analysts at MarshBerry have claimed.

As of January 3, the 2022 deal count had ticked up to 708, just four off the 2020 reading. “When the dust settles and all deals are announced, it will likely be the second highest year on record,” report author Phil Trem wrote.

The story remains focused almost exclusively on insurance brokerages at 91.5% of the total deals reported. Those have risen at a nearly 14% annualised pace over the course of a decade.

Private capital backed buyers of brokerages have dominated the deal count for over a decade, most recently accounting for 525 or 74% of the 708 transactions in 2022. Independent agencies accounted for 83 (or 11.7%) of the total deal count.

Deals involving specialty distributors as targets accounted for 22.5% of the total 708 deals in 2022 in "a trend that is anticipated to continue as traditional retail brokers expand into the wholesale and delegated authority space."

The top ten most active buyers accounted for 345 or 49% of the 708 deals. Acrisure, Hub International, and Peter C. Foy & Associates Insurance Services accounted for 19.8% of total deals.

Base valuations held from prior year levels, despite the market problems, and only earn-out premiums edged down slightly from 2021. Mark P/EBITDA ratios largely flat at 10.7x with a 0.1x cut in realistic earn-out add-ons and on maximum ear-out caps.

That year-on-year stagnation could "maybe" represent a peak in valuations, Trem said, but with plenty of quality players and platform deals still going at a premium. Platform deals saw an increase in valuations on guaranteed base price from 12.84x to 13.20x EBITDA.

"Buyers are still willing to pay higher multiples for high performing platform organisations," Trem wrote.

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