Why 2024 could be another banner year for brokerage M&A

The insurance brokerage market saw 48 deals in the first half of 2024, and with six months left to go, experts predict this year could become another exceptional year. 

The total counts all publicly announced deals across P&C and life and health brokerages, according to M&A advisory firm Smythe LLP. And the firm expects this pace to pick up as inflation comes under control and buyers feel more confident there won’t be a recession. 

Specifically, there were 20 deals in Q1 and 28 in Q2, which might reflect an increased confidence among acquirers in the market as the year wears on.  

“The insurance brokerage industry continues to be a sought-after asset class for investors as it offers resilience in difficult economic periods and frothiness in rising markets,” Smythe LLP partners Alex Wong and Gagan Ahluwalia write. 

“This, coupled with the availability of capital looking for reliable returns, has resulted in a scarcity premium to the benefit of brokerage valuation.” 

Comparably, there were 52 deals at half-year in 2023, and 42 at half-year in 2022, according to the firm’s June M&A Update. 

 

What acquirers are looking for 

With deal counts expected to increase in the second half of the year, Smythe LLP’s partners have noticed trends during the transactions they’ve handled this year: most notably acquirers show interest in high performing books, B2B brokerages and life and health brokerages. 

Buyers are increasing their focus on brokerages with real organic growth, for example, increases in client count or policies in force (PIF), as the industry enters softer market conditions. 

Thus, brokerages that can demonstrate they’ve maintained a ‘consistent level of new client growth’ might find they’re likely to have higher valuation multiples.  

Whether niche or specialty product offerings by brokers will see acquirer interest depends on their growth opportunities. 

Consolidators are also expanding their acquisition strategies to buying life and group health entities, securing claims-management talent, and engaging in additional services within the same business vertical, Smythe notes. 

Some acquirers may be more selective with their deals, and B2B brokerages are among their most sought-after targets.  

“There is still a market for traditional, personal-lines focused brokerages, particularly those with scale or a concentration of high-net-worth clientele. It’s important for any brokerage to demonstrate strong retention and growing PIF count in order to maximize value.”  

 

Feature image by iStock.com/simarik