Insurance Broker Valuations Gone Wild

In 25 years of working in insurance M&A, I have never seen such a wide gap in insurance broker valuations as exists today.

At time of writing, Brown & Brown was trading at approximately 11.2x EBITDA. Publicly traded Baldwin, roughly one-fourth the size of Brown & Brown, is scheduled to be taken private early next year by the Dell Family Office and Sequence Holdings at approximately 20x EBITDA. Private equity-backed USI has signed a definitive agreement to be sold to publicly traded Aon for approximately 17x EBITDA.

In the private market where we operate, clients with $5 million to $10 million of EBITDA have traded at higher valuations than public peers 50x their size, while other PE-backed brokers with $100 million in EBITDA stall with few to no acquisition bids.

This all raises an obvious question: what explains the extraordinary spread in valuations?

Declining Broker Valuations

Insurance broker valuations have generally declined over the past 24 months. Interest rates have increased from approximately 5% to 10%, and the property and casualty market has entered its first meaningful soft market in years.

We have always viewed Brown & Brown as a bellwether for market valuations because it is a large, publicly traded, pure-play broker with a long operating history, a diversified business, and a widely followed stock. The firm appears to have been ahead of the curve on falling valuations, its numbers declining by roughly 32% from approximately 16.5x EBITDA at year-end 2025 to about 11.2x EBITDA today.

Perverse Incentives

For perhaps the first time ever, smaller brokers, those with approximately $1 million to $10 million of EBITDA, sometimes receive higher valuation multiples than much larger brokers.

In theory, a private equity investor would be better off buying shares of Brown & Brown than buying a $1 million EBITDA brokerage in the Midwest with a single line of business and one or two producers. But private equity firms cannot simply buy Brown & Brown stock. They cannot go back to their limited partners that supply capital and say, “We invested in a publicly traded company that you could have bought yourself without paying us a management fee.”

At the same time, will they buy a company with $100 million to $500 million of EBITDA at 16x and then tell the market that they bought a private company, one-quarter the size, with more risk, less-established management, and less liquidity, for 50% more than they could have paid for a public company?

Instead, paying 11x to 13x for a smaller brokerage solves several problems:

1.   It allows the acquiring firm to deploy capital without the market knowing all of the details of the transaction.

2.   It gives the firm time for valuations to recover and/or interest rates to decline.

3.   It provides a path to create value through growth, acquisitions, and operational improvements.

4.   It avoids the optics of paying a substantial premium for a large private company when comparable public companies are available at lower multiples.

As a result, in today’s market, a business generating $5 million of EBITDA may trade at a higher multiple than a business generating $100 million of EBITDA. That may not be rational from a fundamental valuation perspective, but it can make sense within the incentives and constraints of the private equity model.

Aon and USI

The Aon-USI transaction is different. Aon is a public company and does not have the same private equity constraints. Is USI worth 52% more than Brown & Brown? Probably not. But Aon was not going to buy Brown & Brown. If it had, Aon would likely have had to pay a control premium for a much larger public company.

USI, on the other hand, is a high-quality, best-in-class brokerage platform that Aon could acquire at a price that made strategic sense. It should be noted, though, that the market wasn’t charmed by the deal: after Aon announced the $17 billion acquisition in August, its stock dropped by roughly 7%, effectively wiping out $5 billion of market value in a single day.

The Baldwin Transaction

Dell is known for taking a long-term approach to investing. So did the Dell Family Office and Sequence overpay for Baldwin? On the surface, it appears so. A purchase price of approximately 20x EBITDA is difficult to justify using a traditional private equity return framework.

But the Family Office can own an insurance broker indefinitely, unlike a conventional private equity buyer. It does not have to sell the business in five years. It does not have to meet a fund-return hurdle. It does not have to generate a 25% internal rate of return for outside investors. And it does not have to manage around a fixed investment period.

At 20x EBITDA, the buyer is effectively earning an initial EBITDA yield of approximately 5%, plus whatever growth, inflation protection, and operational upside the business produces over time. That may not be attractive to a traditional private equity fund, but for a permanent-capital investor that is investing its own money, it can make sense on several fronts.

These transactions highlight a fundamental disconnect in today’s insurance brokerage market. The highest multiples are not necessarily going to the largest, safest, or most liquid businesses. Instead, valuations are shaped by the type of buyer, the buyer’s capital structure, its return requirements, its time horizon, and its need to deploy capital.

For more on why picking broker valuations is more like throwing darts today, read the full article here.