Insurance Intermediary Deal Momentum Gathers Speed

Mergers and acquisitions (M&A) activity for the third quarter of 2014 was strong with 69 deals, helping propel the total deal count to a record 220 through September. We have not seen the deal count in the 200s at this point in the year since 2008, before the financial crisis. In 2013, there were 224 announced transactions for the full year. July, while the slowest month of this year, posted a respectable 18 deals, August followed with 24, and September knocked it out of the park with 27.

In the third quarter, 42 percent of all deals were of property/casualty firms, 32 percent were multi-line and 26 percent were employee benefits agencies. The wholesale segment, with 49 announced deals this year, comprised 22 percent of the deal count and has already surpassed prior annual totals.

On the buyer side, private-equity backed and independent agencies accounted for nearly 70 percent of all deal activity through the third quarter. Public brokers increased their activity for the first nine months to 17 percent of all activity, an increase of nearly 10 percent from the comparable prior year period. Insurance companies, banks and other buyers slightly declined from the prior year, rounding out the year-to-date activity with 14 percent of the pie.

We see the employee benefits space continuing to drive activity as large, national players recognize the opportunity in the benefits distribution platform. In addition, in the wake of healthcare reform, agencies with less than $3 million in revenue are finding that becoming part of a larger organization can provide the necessary tools to hopefully be successful going forward.

Top Buyers

The top five buyers for the year accounted for more than 30 percent of all activity.

Arthur J. Gallagher leads the year with 21 domestic deals announced, nearly half of them (10) coming in the third quarter. After completing five wholesale acquisitions in the second quarter, Gallagher bolstered its retail portfolio with nine of its 10 deals in the third quarter. With the acquisition of seven benefits firms in 2014, Gallagher continues to expand its employee benefits business, too.

AssuredPartners followed with 16 for the year, outpacing nine for the comparable period last year. AssuredPartners completed four of its deals in the third quarter, targeting retail/wholesale firms with P/C, benefits or multi-lines of business.

Hub International and Acrisure both completed 12 deals during the year. While Marsh & McLennan did not have third-quarter deal activity, it rounded out the top five with eight transactions.

Buyer Demand High

The market is saturated with capable buyers and we are seeing increasing amounts of competition. In our opinion, there is no shortage of demand, as buyers continue to supplement their weak organic growth with acquisitions.

The top five buyers this year completed three times as many deals during the first nine months of 2014 as they did for the comparable period last year.

There are also new buyers in the pool. Of the 104 different buyers this year, 46 got on the scoreboard for the first time with one deal, five of them completing multiple transactions.

With 220 announced transactions through the third quarter, the deal count is greater than any comparable period in more than a decade. As we begin to surf past last year’s total, it will be interesting to see how high we ride the tide.

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Merger and Acquisition Activity
July to September 2014

Sources: SNL Financial, Insurance Journal, other publicly available sources and MarshBerry proprietary databases

Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.