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Continuing fast pace for insurance M&A in U.S., Canada: OPTIS


October 20, 2017   by Canadian Underwriter


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Sellers seem to be enthusiastically responding as buyers continue the aggressive valuations of p&c and employee benefits agencies, with OPTIS Partners reporting Thursday there were 132 deals inked during 2017 Q3, bringing the year-to-date total to 457.

Chicago-based OPTIS Partners’ proprietary mergers and acquisitions (M&A) database covers U.S. and Canadian agencies selling primarily p&c insurance, those selling p&c and employee benefits, and those selling only employee benefits, notes a statement from the investment banking and financial consulting firm specializing in the insurance industry notes.

The firm’s latest quarterly report – which breaks buyers into five groups: private-equity (PE)-backed brokers, privately held brokers, publicly held brokers, banks and all others – reveals the 132 insurance agency M&As in the third quarter of 2017 are up from 113 for the same period of 2016. As for the YTD, this tally also rose, up to 457 from 350.

For 2017 Q3, privately owned brokers accounted for 65 deals, PE-backed brokers bought 50 agencies, publicly owned brokerages purchased 10 firms and banks made six acquisitions.

Related: Insurance-related M&A activity explodes, insurance company moves in Canada high: OPTIS Partners

“There’s no end in sight to the upward trend,” suggests Timothy Cunningham, managing director of OPTIS Partners, commenting that the “appetite of buyers is undiminished, as is the supply of agencies for sale.”

Predicting with absolute certainty that “2017 will be another record-setting year for M&A activity,” Cunningham goes on to say that “the activity is fuelled by aggressive buyer valuations, in particular from PE-backed buyers who are flush with cash. And there’s a plentiful supply of aging agency principals who need to complete their exit strategies.”

By seller type, the statement notes that p&c agencies continue to be most popular, making up 69 of the 132 deals during the third quarter of 2017.

That said, sales of employee benefits brokers have picked up in 2017, totalling 34; 15 agencies selling p&c and benefits were sold; and 15 deals fell in the “other” category.

“Sellers have a great opportunity today,” contends Daniel Menzer, a partner with OPTIS Partners. “If you are a potential seller, consider acting sooner than later while the irons are hot and the pricing is favourable,” Menzer recommends.

“If you’re a buyer, do your homework on the potential seller. Fully evaluate their risk and growth potential. Look at the financials in depth and consider qualitative factors. Overpaying can be deadly,” he cautions.

Related: Megadeals, political instability and strong equity markets deliver M&A underperformance for insurers: WTW