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Insurance Broker M&A 2025: Valuations, Interest Rates Spreads, and Deal Volume
Overview
Despite recent macroeconomic headwinds, the insurance broker M&A market continues to demonstrate resilience through the first half of 2025. Sica | Fletcher has advised on 17 sell-side and 20 buy-side transactions, keeping pace with 2024’s first-half activity, and while borrowing costs have eased modestly during that period, the spreads – expected returns in excess of the cost of debt – remain in negative territory for transactions over $1m in EBITDA, a reminder that ever-increasing valuations continue to strain the cost of capital equation.
Valuations
As the leading advisor to the insurance brokerage M&A market, Sica | Fletcher maintains one of the most robust and comprehensive datasets in the industry. Stemming from its over 450 sell-side transactions completed over the past decade, each of which often generating up to 10 bids, Sica | Fletcher has amassed thousands of sell-side data points, including revenue multiples, EBITDA multiples, profitability data, auction vs. non-auction metrics, and offer spreads, to name a few.
Data across deals with at least $1.0m in EBITDA show that EBITDA multiples through the first half of 2025 averaged 11.8x, virtually in line with the 11.9x average for 2024. Over the past four years, EBITDA multiples have expanded steadily from a low during 2020 of 9.4x to a high of 12.1x during Q3 2024, representing a robust 29% increase.
This difference in multiples is even more dramatic for transactions involving M&A advisors. Since 2020, deals with an advisor traded at multiples that were approximately 25% higher on average than those without representation, underscoring the value of a professionally executed M&A process and the benefits of competitive pressure.
Interest Rates & Their Impact on Valuations
Interest rates continue to play a critical role in global return dynamics, valuation trends, and investor behavior. The Secured Overnight Financing Rate (“SOFR”), the benchmark short-term interest rate that replaced LIBOR, remains the primary reference rate for acquisition funding, with the average insurance broker borrowing rate equating to SOFR+450 basis points (as depicted in the figure below). When borrowing rates were on the rise during 2022 and 2023, the uniform belief was that target multiples would begin to decline in order for investors to minimize their debt service load and preserve expected returns. As interest rates and debt costs increased, however, expected buyer returns remained surprisingly resilient and the acquirer community absorbed rising debt costs without material valuation declines - a sign of sustained investor demand and optimism in high-margin and high-quality brokerage assets, particularly those of scale.
The Spread
The spread – the difference between the borrowing rate and the expected return – has vacillated dramatically during the past few years. For example, in Q1 2019, a buyer paying 8.5x EBITDA for a broker could expect an 11.7% forward return while borrowing at 6.9%, achieving an attractive spread of 4.8%. By Q4 2020, however, global economic pressures stemming from the pandemic depressed valuations and caused interest rates to plunge, thereby widening the spread to 6.0%.
This dynamic reversed dramatically after the Fed Reserve embarked on an aggressive rate-tightening campaign in 2022 and 2023, driving the 90-Day SOFR from functionally zero to 5.4% by December 2023 – the steepest rate climb in recent history – which resulted in a negative spread for the first time in years. Just prior to the 2024 election, the Fed did lower rates by 50bps and has lowered rates an additional three times since the current Administration has been installed, giving borrowers some needed relief. By 6/30/2025, the spread narrowed to approximately (0.3)% and will likely return to positive in the coming quarters as the Fed is expected to reduce benchmark borrowing rates even further.
YTD June 2025 Transaction Volume
Following record-setting transaction volume in 2021, the M&A market has stabilized over the past few years. This decrease in volume is largely related to the aforementioned increase in the cost of capital and to stable-to-rising agency valuations, as well as general global economic uneasiness resulting in stricter allocation of capital. However, as interest rates continue to gradually ease and lenders regain confidence in the overall economy, we expect an uptick in transaction volume over the next few quarters, which will be further boosted by pent-up demand from consolidators and private-equity platforms eager to deploy mandated capital.
Conclusion
As we approach the end of a tumultuous year, not only politically, but also economically, we expect valuations to remain robust and M&A activity, supported by pent-up demand and strong competition for quality assets, to increase. In addition, as monetary policy loosens and borrowing rates continue to fall, we anticipate the return to a positive spread leading to an increase in use of leverage and expanding returns. Should the Fed reduce rates even further in 2025, we believe a late-2025 rebound in M&A activity will continue into 2026, led by private equity-sponsored acquirers which have driven over 80% of M&A activity in 2024 and through the first half of 2025.
Sica | Fletcher Transactions
