The growth in P&C firm sales jumped dramatically in 2015, but dropped off slightly in 2016 while the other seller groups remained relatively stable, albeit a slight increase in the number of Benefits agency sales.
The combination of the slight pull-back in P&C transactions and the increase in Benefit agency sales in 2016 caused some minor changes in the distribution of transactions.
Summary:
The agency M&A world remains very active, with aggressive buyers and plenty of sellers. Interest rates remain low but starting to slowly move upward, and money is readily available for investing in the insurance broker community. Our closing comments remain similar to what we have said in the past:
- Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors. In many ways, what we have been experiencing over the past couple years is a “perfect storm” for the benefit of sellers. Like all storms, they eventually pass and calm returns.
- Buyers, in particular the smaller and less capitalized firms, need to be careful not to get carried away in the pricing competition for a seller’s business only to find out later they can’t afford to pay for it.
- Firms wrestling with trying to perpetuate need to be steadfast in their realistic valuations for internal transactions without getting overly swayed by actual and anecdotal pricing stories of other agency transactions. Remember, in a perpetuation process, there are no buyer synergies or strategic value that the buyer can utilize to enhance the value of the transaction.
- For agency owners waiting for the “right time to sell” before jumping on the bandwagon, be careful not to let the last one pass you by. This remains a sellers’ market likely for the near term future, but it won’t last forever.
- Finally, if you’re neither buyer nor seller, ignore all the hype and stories about how much others have sold for and focus instead on finding the right people to help you grow your agency and improve your metrics every day. Keep your long-term plans in sight and take the necessary steps to position yourself to achieve your goals.
