August 12, 2020 by David Gambrill
Before the pandemic, hard market conditions and the increasing digitization of brokerages were already reasons for some broker principals to ponder selling the business and moving on, but the novel coronavirus may have further accelerated the pace of M&A, says a BrokerLink executive.
“There’s a lot of [mergers and acquisitions] activity in the market,” Paul Meyer, Brokerlink’s vice president of acquisitions, said in an interview with Canadian Underwriter Wednesday. “My view on it is that whenever there is a catastrophic event, like what we see here [with the COVID-19 pandemic], it gives people pause to reflect and to think about things. My view is that it may be why we are getting a lot more activity.”
Meyer observed that a lot of brokerage M&A activity occurred before the pandemic because of pressures in the marketplace. “Personal lines are changing,” he said. “It’s digitalizing quickly. That’s a different process and a different model than what a lot of brokers are used to. The commercial lines market is hard and it’s tough, so there’s a lot of frustration, and there was [M&A] activity just around that. But we’re really seeing it step up now [during the pandemic]. It’s almost like human nature: People start to think about what their priorities are, and what they want to do.”
BrokerLink, a subsidiary of Intact Financial Corporation, has been an active player in brokerage M&A deals across the country. Among Canada’s largest brokerages, BrokerLink has 140 branches and 2,000 employees across the country, with more appetite for growth.
But the brokerage took a bit of a hiatus from deal-making during the height of the novel coronavirus pandemic, particularly between March and July 1st. Which is not to say BrokerLink wasn’t working on any deals during this time. In fact, the brokerage announced Tuesday nine deals that closed in 2020, acquiring brokerages in the ongoing target areas of Alberta, Ontario, and Atlantic Canada.
But Meyer notes that it takes about 10 months on average to close an acquisition, so some of those deals that closed in 2020 had been in the works for some time before the pandemic. And the deals BrokerLink was working on during the height of the pandemic tended to be ones for which it had already signed letters of intent. And while BrokerLink followed through on these commitments, it put discussions on new potential deals temporarily in abeyance.
However, look for BrokerLink’s M&A activity to ramp up again with re-opening of the economies in Alberta, Ontario and Atlantic Canada. “We’re quite bullish,” Meyer told Canadian Underwriter, referring to BrokerLink’s current M&A discussions in these three Canadian regions. “There are a lot of opportunities. We continue to do deals. We have probably about 15 active discussions under way right now. Some will close before the end of the year, but some of those will take us into next year.”
BrokerLink is open to discussing any potential deals, but it is especially interested in bulking up its $500-million business in standard commercial and specialty commercial lines. “We’ve got access to most of the markets and most of the MGAs in Canada, and we’re a Lloyd’s coverholder as well,” Meyer said. “And while the [hard market] is a frustration, we do have lots of capacity within our group. We’ve got the expertise from our employees and a lot of infrastructure that can help navigate through that.”
Asked if the pandemic complicated M&A deal-making at all, Meyer noted that deal-making is a relationship-based business, but the pandemic doesn’t really have much bearing on the front-end aspect of deal-making. For example, it doesn’t affect the initial discussions with the broker principals, because he knows them already. And it doesn’t really impede the process of drawing up or closing the deal.
Where it makes a difference, he said, is after the deal is closed.
“We like to get in front of the [acquired] employees right away, because of course they are nervous — the business has been sold,” Meyer said. “Our motto is that we assume all of the employees at the same terms. Of course [the process of meeting employees after closing the deal] been hindered, because now we are doing this by phone or Zoom calls. And that’s a good alternative, but it’s not as good as getting in front of them face-to-face.”