The Acquisition Cycle

By Stephanie K. Jones | March 11, 2013

Insurance agency mergers and acquisitions were up last year, at an all-time high in fact, according to the Chicago-based M&A advisory firm OPTIS Partners.

A recent survey conducted by the financial services consulting firm showed there were 291 reported agency M&A transactions in the United States and Canada in 2012, compared with 279 in 2011. The previous record year for agency M&A transactions was 2008, when 284 agencies were bought and sold.

One reason for the uptick in such transactions was the anticipation among buyers and sellers that the capital gains tax would increase in 2013. Both sides of the transaction were eager to complete the deals before that happened, according to Timothy J. Cunningham, managing director of OPTIS.

OPTIS believes that 2013 will be a strong year for agency M&As, though not a record-setting one.

Buyers will pay more for top-tier acquisition targets.

New York-based MidCap Advisors, a consulting firm that specializes in small and mid-size brokers and agencies, says buyers are increasingly finding it more difficult to find top quality acquisitions opportunities.

When they do find top-tier acquisition targets they are willing to pay more for them, MidCap executives Frank Robertson, vice president, and John Poppe, partner, said during an interview with Insurance Journal.

(You can check out their complete interview at www.InsuranceJournal.com.)

Among the attributes that agency purchasers look for are good organic growth and competent management. Buyers “like agencies that have an established sales culture,” Robertson said.

A good mix of personal and commercial lines of business and a relatively-low customer churn are also a plus.

Stand-alone employee benefits agencies, especially those that focus on insuring groups of less than 50, have been seeing their market value come down, according to MidCap Advisors and OPTIS.

OPTIS said that sales of employee benefits agencies fell slightly in 2012, while agencies with a mix of property/casualty and employee benefits business saw an increase in M&A interest.

Cultural fit is important to buyers. Of interest, too, is whether the candidate agency is ready to be sold.

The agency’s information should be well prepared and laid out, allowing 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.

From This Issue

Insurance Journal West March 11, 2013
March 11, 2013
Insurance Journal West Magazine

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