M&A activity likely, but only for smaller brokerages

Merger and acquisition activity appears likely to heat up within Canada’s insurance brokerage marketplace, but it’s unlikely the activity will involve larger brokerages, Eric Andersen, CEO of Aon US Retail, said in an Advisen Webinar on May 13.
In an earlier report, Advisen predicted an uptick in merger and acquisition activity in the U.S. marketplace. In the Advisen Webinar, ‘The Insurance Market in 2009,’ Andersen was asked if he believed the same appetite existed in the Canadian marketplace, given the current recession.
Andersen said the natural buyers of small brokerages or boutique firms have typically been larger players, but hurdles exist in the Canadian marketplace for larger brokerages. These hurdles include the existence of contingency fees for small or mid-level players, but not larger firms, as well as difficulty in reaching a valuation agreed upon by both sides of the acquisition.
“I would say that [regarding] the influence of private equity into the acquisition of brokerage firms a couple of years ago, that has certainly gone very quiet and you’re beginning to hear it reversing,” he added.
As the marketplace enters into the fifth or sixth year of a soft cycle, “margins at brokerages at this point in time are under some pretty significant pressure, so the ability or willingness to sell usually heats up about now,” he continued. “It would not surprise me to see more activity, but it would surprise me to see the larger players get much more active in it than they have been over the past couple of years.”