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M&A transactions for insurance companies are part of a robust but complicated market that requires ingesting a great deal of data in order to fully understand. Our SF index covered 71% of all announced insurance M&A transactions in Q1 2024, putting Sica | Fletcher in a uniquely qualified position to offer an analysis of what is going on, why, and what it means for insurance M&A in 2024.
This article presents our insurance M&A 2024 outlook by providing some essential statistics on what insurance agencies are currently selling for, as well as a few predictions from our research team about what to expect for the rest of the year.
The Stats
Much ado has been made about the effects of macroeconomic turbulence on the insurance M&A industry over the last few years, but the data shows remarkably few of the characteristics one would expect. While insurance M&A did see slight dips in deal volume and average value (Fig.2) our team noted unexpected increases in the valuation multiples offered for insurance agencies, as depicted below.
(Fig 1.) EBITDA Multiples for Insurance M&A: 2024 Outlook
What the increase in valuation multiples tells us is that buyers are willing to pay more than ever for insurance agencies - notably, multiples are expected to take a small dip this year in expectation of the Federal Reserve cutting interest rates at some point later in 2024. Despite years of evidence suggesting that M&A activity decreases in times of economic uncertainty, it appears that the market has evolved to meet the needs of the times.
That being said, M&A activity did see drops in deal value and overall volume in 2023, however, this decrease comes with two important caveats:
The declines noted came primarily from megadeals and larger agencies valued at over $100MM. When we remove this element, deal volume actually held steady.
Both are already rising as of Q2 2024, with annual numbers expected to exceed those of last year, despite falling short of the highs of 2021.
(Fig 2.) Insurance M&A 2024 Outlook: Deal Value and Volume
These considerations paint a cautiously optimistic picture of what we expect for 2024. This is, of course, assuming the Federal Reserve holds to the projected lowering of interest rates. The general uncertainty of an election year, however, makes it difficult to provide accurate forecasts.
Having noted these conditions, our insurance M&A 2024 outlook rests on three predictions:
Private Equity Firms Will Continue To Dominate
Over the last 5 years, PE firms have played an increasingly larger role in the buyer space, making up approximately 90% of insurance M&A buyers in 2023. So far, our team has noted a slight decrease in this space for H1 2024, however, their domination in the insurance M&A space remains unquestioned.
(Fig.3) Insurance M&A Buyers (Total Deals)
2024 data already indicates this to be true; in Q1 alone, we saw ~110 PE-backed transactions, representing approximately 87% of the transactions recorded in the SF Index. Although Q2 data is not yet finalized, it appears to continue this trend, suggesting that 2024 will also see significant activity from PE firms.
Stock Will Take Up a Larger Percentage of Payout Structures
While 20 years ago, transaction payouts were typically 100% cash, more often than not, modern payouts now almost universally contain some amount of equity in the buyer company as a central part of the deal. In only the last two years, we’ve seen the percentage of equity in insurance M&A transactions double, indicating a strong growth trajectory for equity to play increasingly larger roles in future deals.
(Fig. 4) Insurance M&A 2024 Outlook: Equity vs. Cash
2022 | 2023 | 2024 (Projected) |
In the longer term, we do expect this trend to taper off; insurance agency owners are only going to accept so little cash in their payout when selling their company. Still, we predict that equity will remain a prime feature in M&A transactions at least throughout the remainder of the decade.
Deals Are Taking Longer Than Ever
Historically, M&A transactions have taken between 6-12 months on average, depending on the goals of the seller, the nature of the buyer, and the conditions of the payout. As advisors have had to place a tighter focus on equity over the last several years, however, the deal process has significantly lengthened.
(Fig. 5) Advanced Capital Structures and Deal Duration
Classic Capital Structure | Advanced Capital Structure | |
Debt | Senior Debt $500MM | Senior Debt $500MM
Mezzanine Debt $100MM |
Equity | Common Equity $800MM | Preferred Equity A $200MM Preferred Equity B $200MM Common Equity $300MM |
Total Capitalization | $1.3 Billion | $1.3 Billion |
Deal Duration | 6-12 Months | 9-18 Months |
The other factor affecting deal duration is buyer uncertainty. Although 2024 looks more promising than 2023 or 2022 in general, there are still a great many x-factors that keep buyers in a constant state of “wait and see,” making it difficult for advisors and agency owners to speed the process along.
Understanding the Insurance M&A 2024 Outlook
There’s only so much information and insight that we can put into a report like this. Agency owners who are seriously considering selling their insurance agencies are in a significantly better position to take advantage of the insurance M&A market in 2024 if they speak with an experienced M&A advisor. As the first and only boutique M&A advisor to manage deals of over $1B, Sica | Fletcher has represented so many insurance agencies that we are considered “market makers” by industry experts, which makes us an ideal partner in your sale. You can reach out to our team using the contact information below or through the contact page on this site.
About Sica | Fletcher: Sica | Fletcher is a strategic and financial advisory firm focused exclusively on the insurance industry. Founders Michael Fletcher and Al Sica are two of the industry's leading dealmakers who have advised on over $16 billion in insurance agency and brokerage transactions since 2014. According to S&P Global, Sica | Fletcher ranked as the #1 advisor to the insurance industry for 2017-2023 YTD in terms of total deals advised on. Learn more at SicaFletcher.com.
Contact: Mike Fletcher
Managing Partner, Sica | Fletcher