Is M&A growth better than organic growth?

When it comes to expanding your brokerages business, M&A may not always be better than organic growth, said panellists during a Canadian Underwriter webinar on Feb. 8.  

Doug Morrow, CEO and managing partner, Excel Insurance Group, sent a plea for brokers to maintain their independent brokerages in the face of large-scale M&A activity. 

He says people from “small town Canada” who want to become insurance professionals are being pushed to become employees, rather than owners of agencies.  

“It used to be that you could aspire to either purchase an insurance agency, inherit an insurance agency or at least go through a succession plan, and I think some of the M&A activity is destroying that,” Morrow says. 

“[M&A] is touted to our staff and to our senior employees and people who aspire to be agency owners [or partners] that you have to go through an M&A process to be relevant, to have market access, to represent enough insurance companies, to have those insurance companies listen to you. Otherwise, in your market, you could be dominated by larger, more capable competition,” Morrow says. 

“And the reality is that there’s more than one way to do that. you don’t have to sell. You can partner with other agencies to create that critical mass.” 

Morrow advises independent brokers to not sell their brokerages. “I think it’s in the insurance company’s best interests as well, to have a strong, capable, professional and independent broker force in this country.”  

Another broker believes that growing a niche market may no longer be the best route for smaller firms.  

“I think the end of the road for all niche is that scale will buy niche. So, you might have a nice exit for a bit, but I don’t know that you’ll have generational success ongoing,” says Adam Mitchell, CEO, Mitchell & Whale Insurance Brokers. “It feels like all roads lead to scale in this current marketplace.”  

Roughly 65% of webinar attendees believe that M&A growth is better than organic growth, according to poll results. But this may not be the case for all, Mitchell says.  

“I’d say that both growing organically or through M&A is a skill set and a discipline, and assuming you can do either is silly. They’re both fraught with all kinds of problems and difficulties, hurdles and pitfalls.” 

He advises brokerages to “pay particular attention to the velocity in which you can do either. As in, you might not have a business that has organic growth options. You might not be structured for it; you might not have a talent for it.” 

Mitchell says his brokerage has mainly grown organically, and has completed “hardly any” acquisitions. “In our view, [M&A] would have to have a strategic purpose.”  

“I would say that the best businesses that I see, or the most valuable ones as rated by the market, have both disciplines. You’re able to run a strong sales enterprise as well as a strong M&A team,” Mitchell says.  

Erin Magilton, risk and broking leader, Canada, WTW, says the best growth strategy is one that serves your consumers. 

“I think there really needs to be a discipline around staying focused on clients. In my experience, M&A has a tendency to distract people from what should be the most important thing, which should be clients,” says Magilton. 

“Is it right, ultimately, for your client base?” She poses. “Clients deserve to have options, and they deserve to have an environment where there is innovation and new ideas, and competition can often drive that.”