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Your Insurance Brokerage, Their Capital:
What You Need to Know About Selling to PE
by Managing Partner, Mike Fletcher
Overview
Private equity (PE) has completely reshaped insurance broker distribution. It has pumped billions of dollars into the space, giving owners a way to cash out, and pushed valuations to levels that would have sounded ridiculous 15 years ago. From about 2010–2020, PE money helped firms scale, cleanup operations, and sell at eye popping EBITDA multiples.
But here’s the part that doesn’t make the glossy pitch deck: selling to PE is complicated. If you don’t really understand what you’re signing up for, you can wake up a few years after closing and realize the “big win” wasn’t nearly as big as you thought.
How We Got Here: PE in Insurance Distribution
During the 2010s, PE rushed into broker distribution. The playbook was simple:
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Buy platforms in a fragmented market
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Roll up add-on acquisitions
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Layer in process, data, and discipline
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Use cheap debt to juice returns
Low interest rates, tons of available capital, and strong industry fundamentals created a perfect storm. Deals got bigger, multiples got richer, and a lot of people made a lot of money. It also quietly rewired how brokerages are bought, sold, and run.
In practice, there are two main ways PE shows up in your world:
1. Direct sale to a PE firm
The PE fund buys an equity stake in your company. Expect:
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Tighter governance
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More reporting
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A real say from your new minority (or majority) partner on strategy and capital allocation
2. Sale to a PE‑backed platform (most common)
You sell to a company that’s already owned by PE. You usually walk away with:
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A big cash payout up front (say ~80%)
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Stock in the platform you’re joining (often ~20%)
This second route is where most of the upside stories live. For example, over the past decade it wasn’t uncommon for the roughly 20% rollover equity a seller took to be worth more than the ~80% cash payout they received just five years earlier.
How PE Actually Gets Involved
In a PE‑backed sale, you are not investing in the PE fund itself. You’re becoming a shareholder in the platform company they control.
Historically (think 2013–2019), that equity piece often turned into a very nice “second bite at the apple.” As the platform grew and repriced at higher multiples, sellers who rolled equity made serious money.
But those outcomes rode on a huge tailwind: cheap debt and easy leverage. Once rates started climbing in 2022, that leverage suddenly cut both ways.
Why Selling to a PE-Backed Buyer Is Different
To boost returns, many sponsors leaned hard on debt. Then some went a step further and added preferred equity on top.
Preferred equity is a hybrid:
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It sits in front of common equity in the payout line
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It usually has a contractual return attached to it
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Preferred holders get paid before the common stockholders (you) see a dollar
When used well, preferred equity can dramatically boost returns for common shareholders. But it cuts both ways—if growth stalls or market valuations soften, preferred holders can strip most of the upside from common equity.
Where Things Get Complicated: Leverage, Preferred Equity, and Valuations
1. Priority of returns
Preferred investors are at the front of the line. If they’ve got a rich coupon or a big accrued return, they can soak up a huge chunk of the exit value before common equity gets anything meaningful.
2. Misleading headline valuations
This is where it gets dangerous:
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You hear: “The deal is at 20x EBITDA.”
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What’s not obvious:
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There’s preferred equity with a guaranteed return
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There may be options, warrants, or other sweeteners favoring the sponsor
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The structure is designed to protect the preferred and amplify their economics
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On paper, the valuation looks fantastic. In reality, once the preferred stack and sponsor economics are paid, the residual value for common may be far lower than the headline suggests.
And because:
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Many sellers never see the full waterfall, and
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The terms of preferred instruments aren’t always pushed front and center
…it’s easy to dramatically overestimate what your equity is actually worth.
To be clear, preferred equity isn’t bad in itself. Used properly, it can bridge valuation gaps, protect downside, and align incentives. The real risk is going in blind—rolling stock without understanding where you sit in the capital stack.
Key Risks When You Take Stock
If you’re taking stock as part of your deal, treat it like what it is: an investment decision.
Two offers can look similar on the surface: same multiple, same cash/stock mix but be worlds apart economically. A few examples include:
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How much leverage sits ahead of you
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How big, and how rich, the preferred layers are
Some basic but critical questions:
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What does the full cap table look like?
Who owns what, and with what rights?
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How does the exit waterfall work?
At what enterprise value do common holders (you) really start to participate?
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What senior claims exist?
Any liquidation preferences, accrued dividends, PIK interest, or other rights that get paid before commons?
The Stock You’re Getting: Not All Equity Is Created Equal
Once the ink is dry, your outcome depends heavily on two groups:
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The operating management team
They’re responsible for actually growing the platform, integrating acquisitions, and hitting the numbers the model is built on.
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The PE sponsor
They control the board, major decisions, and capital allocation. They decide when to buy, when to sell, when to lever up, and when to de‑risk.
In the boom years, plenty of people looked brilliant just for being in the right seat at the right time. Equity went up because everything went up.
Today, with higher rates and more scrutiny, you want:
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A sponsor with a real, audited track record of realized exits, not just pretty paper marks
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A management team that has operated through cycles, not just in bull markets
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A sponsor that knows how to grow with discipline not just load on debt and hope for multiple expansion
Even with the added macroeconomic challenges, sellers can still gain a major advantage by taking equity: they can co-invest alongside an investor they might never otherwise access—often as an equal co-investor who does not pay fund fees.
For example, a direct investment with a top-tier private equity sponsor today may require a $5 million (on the low end) to $100 million minimum. With that privilege typically comes a 2% annual management fee and a 20% carried interest. Despite these hefty fees, top-tier PE firms have been able to generate 15–30% gross returns for investors. As a shareholder in a direct co-investment, you often act as a co-investor alongside that top-tier sponsor and are not required to pay fund-level management fees or carry. You are effectively investing alongside some of the smartest investment teams in the business — a commonly overlooked benefit of taking equity in these deals. Even in today’s market, if your equity is with truly top-tier managers and you’re not paying fund fees or carry like an institutional LP, your net returns can be excellent.
The Human Factor: Management and Sponsor Quality
Private equity is still one of the most powerful and often best-paying buyers for brokerages. It can give you:
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Immediate liquidity
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Access to scale and resources
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A shot at a lucrative second (or third) bite at the apple via rollover equity
But the devil is absolutely in the details.
The real question isn’t just, “What multiple am I getting?” It’s:
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Where do I sit in the capital stack?
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How do preferred terms work?
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What has this sponsor actually delivered before?
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How does value really flow at exit and to whom?
If you go into a PE‑backed sale with clear eyes, full transparency, and the right advisors, you’re not just selling your business, you’re trading it for a mix of cash today and a thoughtful, calculated equity bet on tomorrow.
Done right, that bet can turn today’s liquidity into long‑term, generational outcomes for you and your stakeholders. Done casually, it can leave you wondering where the “upside” went.