See next to last paragraph. As a minority shareholder, that’s why I left $$ on the table & resigned when Neace Lukens came calling. Primarily because the cultures were a very poor fit but other shareholders only saw $$.
I think more smaller agents are making the choice to join alliances rather than sell as they once did. Plus, my impression of “top tier” brokers included the “alphabet houses” – Marsh, Aon, etc. It’s a lousey time to sell an agency, considering the state of the insurance marketplace and the economy as a whole.
It’s actually a very good time to sell an agency as private equity is driving prices of the overall market, there is more money to spend an agency provide a good return on investment.
The flare up in M&A activity is because it is an excellent time to acquire P&C agencies. I look at dozens of agency financials each year. 2011 was near the bottom for many P&C agencies after the recession. 2012 was a turn-around year which appears to be continuing into 2013. On top of that, interest rates are the lowest in 50 years and there is a lot of pent-up capital with not many good investment options (i.e. the private equity factor).
Agencies under $1.5M in revenue are generally acquired by other agencies whose owners borrow the money from a third party lender. Deals of this size likely make up 60-70% of the transactions happening each year, hence I would contend that the increasing demand is based more on the low interest rates and improved outlook on agency performance over the next few years.
The deals that can’t be financed by a lender are where the private equity buyers really become competitive. Generally, the inflection point is on values over 5.5 x pro forma EBITDA. They are also key players for mid-sized or larger brokerages that may not attract the public brokers, such as ones that have “outside-the-box” (for lack of better phrasing) operations, target sub-standard business or whose owners may want to retain equity. It should be understood that private equity-backed buyers are not always strategic buyers and they are still looking for a return on investment.
See next to last paragraph. As a minority shareholder, that’s why I left $$ on the table & resigned when Neace Lukens came calling. Primarily because the cultures were a very poor fit but other shareholders only saw $$.
I think more smaller agents are making the choice to join alliances rather than sell as they once did. Plus, my impression of “top tier” brokers included the “alphabet houses” – Marsh, Aon, etc. It’s a lousey time to sell an agency, considering the state of the insurance marketplace and the economy as a whole.
It’s actually a very good time to sell an agency as private equity is driving prices of the overall market, there is more money to spend an agency provide a good return on investment.
The flare up in M&A activity is because it is an excellent time to acquire P&C agencies. I look at dozens of agency financials each year. 2011 was near the bottom for many P&C agencies after the recession. 2012 was a turn-around year which appears to be continuing into 2013. On top of that, interest rates are the lowest in 50 years and there is a lot of pent-up capital with not many good investment options (i.e. the private equity factor).
Agencies under $1.5M in revenue are generally acquired by other agencies whose owners borrow the money from a third party lender. Deals of this size likely make up 60-70% of the transactions happening each year, hence I would contend that the increasing demand is based more on the low interest rates and improved outlook on agency performance over the next few years.
The deals that can’t be financed by a lender are where the private equity buyers really become competitive. Generally, the inflection point is on values over 5.5 x pro forma EBITDA. They are also key players for mid-sized or larger brokerages that may not attract the public brokers, such as ones that have “outside-the-box” (for lack of better phrasing) operations, target sub-standard business or whose owners may want to retain equity. It should be understood that private equity-backed buyers are not always strategic buyers and they are still looking for a return on investment.