October 27, 2017 by Greg Meckbach, Associate Editor
Acquisitions by insurers “have had an impact on valuations” of brokerages, but the price a brokerage owner could get be selling the business is also affected by factors such as growth and profitability, insurance carrier chief executives suggested Thursday.
“Insurer acquisitions have had an impact on valuations, so for brokers who are looking to sell, this is a positive thing,” said Heidi Sevcik, president and chief executive officer of Gore Mutual Insurance Company, on Thursday during the Insurance Brokers Association of Ontario annual convention.
During the CEO panel – an annual feature of the convention – moderator Jim Harris asked Sevcik whether she believes acquisitions of brokerages by insurance companies affect business valuations.
“For brokers who are looking to acquire, we appreciate that this presents challenges but this was going on long before Gore Mutual ever started considering acquisitions and I am pretty sure that Gore Mutual is not really a big influence on acquisitions,” Sevcik noted during the panel, held at the Shaw Centre in Ottawa.
Cambridge, Ont.-based Gore announced June 28 it agree to acquire Howard Noble Insurance Limited, a brokerage with offices in Collingwood, Barrie and Alliston.
“Noble insurance has been our business partner since 1946,” Sevcik said during the CEO Panel Oct. 26. “This acquisition was really about continuing that partnership and more importantly, securing that broker in the broker channel.”
Industry professionals talk about the “tremendous amount of change that’s impacting our industry and nowhere do we see it more than in the broker ownership changes and quite often those changes lead to companies losing their books of business either to a competitor or to a direct or agent company,” Sevcik noted. “So yes, we are participating in this change.”
Two other panelists – Martin Thompson and Jean-Francois Blais – also lead Canadian insurance companies with ownership stakes in brokerages.
Thomson is president and CEO of RSA Canada, whose group of companies include Johnson Inc.
“Our Johnson business is an area where we actually get to connect directly with the consumer and what we try and do is gain insights on how consumer behaviour is changing in that business and transfer those insights back across to help shape our thinking in terms of what we do in the broker channel,” Thompson said.
For its part, Intact Financial Corp. owns Canada Brokerlink Inc., which earlier this year acquired brokerages in the Vaughan, Windsor and Guelph areas of Ontario, Intact said in its management discussion and analysis for the second quarter of 2017.
During the CEO panel Oct. 26, Harris asked Blais, president of Intact, whether he thinks Brokerlink’s “acquisition patterns will significantly affect either brokers’ own behavior when it comes to succession planning decisions or the expected valuations associated with selling within the market.”
Blais suggested he has “seen so many new options in the market in the past year” and it is “great for all businesses that they have options.”
Harris asked Blais whether he sees valuations “varying significantly between digitally driven brokers and those that have a more traditional approach to consumer service” and whether there is a trend around any difference.
When one looks “at all assets out there,” some firms are “traded very high because of growth” while others “are traded high because of profit,” Blais suggested.
“I believe it depends on the buyer,” Blais said. “I believe some buyers will be very interested by some digital players and other buyers will be very interested by more traditional businesses. They probably attract different buyers but I don’t see fundamentally a different reason to value them so differently.”
Asked how he believes broker valuations are trending in Ontario and whether that is different from other areas of Canada, Blais replied that “future trends are difficult to predict but past trends have shown that valuations have gone up everywhere” in Canada.
“Are we at high valuations now? I believe yes from an historical perspective,” Blais said during the CEO Panel. “But this is true also for all assets – if you look at stocks, if you look at bonds if you look at real estate, if you look at Bitcoin.”
Harris posed a similar line of questioning to Thompson.
“At the end of the day, the valuation of a broker is so dependent on many different things – profitability, size, the desire of the purchaser to acquire the business,” Thompson said.
“There is a lot going on in distribution and vertical integration is just one component in what is a rapidly-evolving area,” said Rowan Saunders, president and CEO of Economical, also on the panel. “I don’t think, from our perspective, that we find a need to actually have a brokerage network of our own. We are more focused on supporting our brokers.”
More coverage of the 2017 IBAO Convention