September 18, 2020 by Jason Contant
After the COVID-19 pandemic temporarily paused brokerage mergers and acquisitions (M&A) activity in Canada earlier this year, it appears that the deals are once again moving forward at a steady pace.
The markets’ reaction to the pandemic has been very interesting, observes Mike Berris, a partner at Smythe Advisory, a B.C.-based property and casualty insurance advisory and consulting firm. “While some potential purchasers understandably paused, others actively pursued acquisitions, albeit cautiously at first,” Berris wrote in a blog, The Impact of COVID-19 on M&A in the P&C Insurance Industry.
When the novel coronavirus was declared a global pandemic by the World Health Organization on Mar. 11, Smythe Advisory had four ongoing M&A processes. “In each case, we had long conversations with both our clients, who were the vendors, and numerous potential purchasers,” Berris said. “I would say that every process paused for at least two weeks and approximately one-third of potential purchasers dropped out immediately.”
But by mid-April, Berris reported, “half the parties that dropped out showed some interest in coming back to the process. And in the end, we had competitive offers similar to what we would have expected in 2019 for all four mandates. That is not to say that vendors did not have to make some concessions in terms of hold-backs, representations and warranties, but in general, the results have been good from a vendor perspective.”
Based on discussions with brokers, Berris expects M&A activity to resume to normal levels this fall. In fact, in many cases, the advisory and consulting firm is forecasting stronger 2020 results when compared to 2019.
“We have been reviewing our clients’ July and August year-to-date results and have found that revenue numbers are in line with 2019, and…a number of clients have also cut expenses,” Berris said, referring to things like brokerages cutting unnecessary expenses and acting to deal with under-performing employees. “Of course, there are exceptions, such as with brokers that have a heavy concentration in travel, hospitality, or entertainment.”
Jamie Lyons, the president and chief operating officer of Westland Insurance, told Canadian Underwriter recently that the pandemic “certainly paused” the brokerage’s M&A program for a time earlier this year.
“Over the past six months, we re-focused inwards to respond to the needs of our business, staff, communities and clients,” Lyons said in response to whether the novel coronavirus affected the M&A process in any way. Westland announced at the beginning of the month that it had acquired four brokerages in Alberta, British Columbia and (for the first time) Manitoba.
But now it seems as though Westland is now gearing up once again for more M&A growth. “We are encouraged by how Westland Insurance, the acquired brokers, and the industry at large have fared through COVID, and we are now actively re-engaging in M&A and our strategic growth plan,” Lyons reported.
One BrokerLink executive thought the COVID-19 pandemic might even help accelerate brokerage M&A. “My view on it is that whenever there is a catastrophic event, like what we see here [with the pandemic], it gives people pause to reflect and to think about things,” Paul Meyer, BrokerLink’s vice president of acquisitions, said in an interview with Canadian Underwriter in August. “My view is that it may be why we are getting a lot more activity.”
So far this year, the brokerage M&A front has been busy. BrokerLink, a subsidiary of Intact Financial Corporation, closed nine acquisitions in Alberta, Ontario, Nova Scotia and New Brunswick. Westland Insurance Group closed four in western Canada. Rogers Insurance acquired a “significant minority interest” in McLean & Shaw Insurance. And Hub International acquired Grande Prairie, Alta.-based Elevate Insurance Brokers.
Feature image via iStock.com/chee gin tan