Broker M&A activity slowing

By BenefitsPro

By Kathryn Mayer

Mergers and acquisitions of insurance agencies are still going strong — just not as strong as last year.

During the first half of 2013, the number of transactions fell slightly, with 122 reported in the United States and Canada, compared to 133 deals in the first half of last year. Those numbers come from to a semi-annual survey by OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

OPTIS managing director Timothy Cunningham called it a period of “relative calm after the perfect storm” of getting deals done before the capital gains tax-hike.

Capital gains taxes increased to 20 percent from 15 percent; and a new 3.8 percent Patient Protection and Affordable Care Act surtax was imposed on investment gains for certain high-income individuals.

“This year’s numbers are inflated somewhat because many of the deals reported in January and some in February probably closed in 2012,” Cunningham said.

OPTIS reported 76 transactions in the first quarter, but just 46 in the second quarter.

Privately owned brokers remained the biggest buyers, making 45 acquisitions compared to 40 during the same period in 2012. Private-equity-backed brokers made 40 acquisitions, the same number as last year. Publicly owned brokers saw their deal count fall from 30 to 18, while banks made 14 acquisitions, up from 10.

Hub International alone accounted for 14 deals in the first half of the year, followed by Gallagher (nine deals) and Digital Insurance (seven).

On the seller side, sales of property-and-casualty-focused agencies stood at 46. There were 30 deals for agencies selling both P&C and employee benefits, 36 sales of employee benefits-only agencies, and 10 other transactions, primarily MGAs being sold.

Analysts say mergers and acquisition activity will still continue to grow over the long-term.

“There are plenty of buyers with readily available funds in the marketplace today,” Cunningham said. “Buyers need the growth acquisitions provide, and the demand will continue to keep valuations attractive to sellers.”

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