The second quarter of 2024 brought some economic stability and capital deployment to P&C insurance brokerage M&A, notes Andrew Mathias, senior vice president of investment banking at KPMG Corporate Finance.
And final numbers for Q3 should tell a similar story.
“We’re seeing a bunch of activity happening,” he tells CU. “I think those macro factors…are starting to ease, and a lot of the big players are starting to jump back into the space.”
The “big consolidation strategy” in the P&C insurance brokerage space only began in earnest about four years ago, he adds.
“The last four years have been extremely busy for the M&A space in our industry,” echoes Kenny Nicholls, president and CEO of Western Financial Group. “We’ve probably seen more activity in the last four years than we have ever, and yet the interest rate was rising.
“You start asking yourself why that is. And I think there has definitely been a greater appetite from private equity money from the States.”
Interested capital
Mathias agrees. “I’m having calls weekly, if not more, with large insurance-focused private equity, even in the U.K. and in the U.S.,” he says. “When they start picking up the phone and asking questions, that’s when you know they’re looking to deploy capital.”
Although private equity fundraising remained relatively constant in 2023, the placing of that capital, or deal count, “absolutely fell off a cliff,” Mathias says, citing year-end 2023 stats. “If you’re not deploying your capital, you’re just charging your [partners] or your investor base a management fee to hold cash or committed cash. Not ideal if you’re an investor.”
Plus, PE isn’t likely to go away any time soon, says Yan Charbonneau, chief vision officer and board chairman at Quebec City-based Synex Business Performance. “Private equity is still very active, and the consolidators are largely backed that way, giving almost unlimited resources for good acquisitions.”
Adds Mathias: “Really large, multi-billion-dollar funds are investing a significant amount in the insurance space in Canada and in the U.S., and will continue to do so.”
Who’s left to buy?
However, given increased consolidation in the market, how many opportunities remain?
Plenty, industry sources say. Mathias tells us he “did a scrape” of the market a year or two ago and found about 10,000 multi-location brokerage businesses across the country. While there has been consolidation since then, that number is still extremely high.
“There are more brokers created each year than brokers bought,” Charbonneau adds. “We do not foresee the end of consolidation soon.”
SIB Corp. (operating as StoneRidge Insurance Brokers), which partners with PE firm CIVC Partners, sees Canada as still having a robust market of available independent brokerages, CEO and president Ted Puccini says.
Citing the mid-2024 interest rate drops totalling 0.5% (before September’s further 0.25% drop), Puccini says 0.5% “is not enough to see SIB make a real change in strategy and our thinking on leverage ratio and debt level(s).
“But regardless of interest rates, or any other factor, SIB’s M&A goal will always be the same — to perpetuate a business model that ensures brokers who select us [as M&A partners] will always be able to maximize better-than-market value for their business,” Puccini says.
Other brokerages also tell CU they haven’t really altered their M&A strategy over the past year.
There’s a belief buyers can ride out a few months of interest rate ‘hurt’ because, “in the long-term, if I’m buying this business for five, six years, I can see through that,” as Mathias says.
This article is excerpted from one appearing in the October-November 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/Ekspansio
