Private-equity-sponsored agencies have increasingly dominated the insurance brokerage business, dramatically impacted transaction pricing and terms, and influenced the sheer number of deals. Earlier this year, we outlined the background of the private equity boom and how private equity and low interest rates have impacted agency valuations. In May, we asked the question of whether the substantially higher valuations reflect a “new normal” for insurance brokers. In this article, we demonstrate how private equity sponsored brokerages dominate the mergers and acquisitions business and, increasingly, the brokerage industry itself.
By the Numbers
There are currently at least 29 insurance brokerages that have received private equity money. The investments have ranged from Acrisure’s $2.9 billion leveraged recapitalization to private equity investments of under $10 million. The size of the brokerages that have received these investments range from well over $1 billion in revenues to not much more than $5 million. Furthermore, over 50 capital providers are either invested in insurance distribution, have participated in a Sica | Fletcher process or understand or are interested in investing in the space.
As a result of the private equity money that has poured into the brokerage industry, the sheer number of insurance brokerage M&A transactions have exploded in the past decade.
The vast majority of these M&A transactions have been consummated by private equity sponsored brokerages. As reported by S&P, there have been 1,400 insurance brokerage M&A transactions between January 1, 2017 and June 30, 2019. The 9 private equity sponsored agencies in Sica | Fletcher’s Agency & Broker Buyer Index were responsible for 737 of the total number of transactions (53% of the total), with Acrisure alone responsible for 341 of the total in this period. While we do not maintain data on all private equity sponsored transactions, we estimate that at least 75% of all agency acquisitions in this period were closed by agencies affiliated with private equity firms. Furthermore, about 30% of the firms in Business Insurance’s most recent ranking of the top 50 brokerages are affiliated with private equity firms and either did not exist or were dramatically smaller a decade ago. This represents additional supporting evidence that private equity sponsored agencies are generally the fastest growing firms in the industry.
Acrisure is a great example of the explosive growth a private equity sponsored firm can generate. In 2013 the company first sold a majority interest in private equity capital when it had under $40 million of revenue. Currently, Acrisure has surpassed $1.6 billion of revenue and continues to grow. This story continues -- several brokerages that raised capital when they were small or start up and have already grown to significant multiples of their size. One agency, for example, raised private equity money less than 2 years ago when it had under $6 million of revenue. At present, and after a series of acquisitions, this agency’s revenue exceeds $40 million. As a result, private equity firms continue to look for attractive investment opportunities in our industry.
If you would like to speak to us about the opportunities that private equity might present for your firm, please give us a call at the number listed below or contact us. Keep watching this space for monthly industry updates, including:
Should Your Agency Jump on the Private Equity Bandwagon?
How Can a Small Agency Take Advantage of Private Equity Transactions?
The Anatomy of a Deal in 2019
Among the brokerage community, Sica | Fletcher is well known as the leading strategic
advisory firm in the US that specializes in the insurance brokerage space and related industries that compliment it. In 2018, we lead the country with 79 transactions completed for insurance agents and brokers, and in 2017, we led the country with 62 closed transactions. What is somewhat less widely known among the broader insurance brokerage community is that we are also the leading advisor to the private equity firms that are most interested in investing in insurance brokerages and in the private equity sponsored agencies that have been created in recent years.
The firm was founded in 2014 by Michael Fletcher and Al Sica, two of the industry's leading insurance M&A advisors who have closed over $6 billion in insurance agency and brokerage transactions since 2014.