Navigating Today’s M&A Waters

Give us an overview of some important M&A trends going into 2024.

2023 saw fewer deals compared to previous years as a lot of very active buyers were surprised by the sudden interest rate spike at the end of 2022. Many firms took a pause to reevaluate their cash generation and operational resilience under the new rate environment. Having had that reset moment, acquisitions resumed at a measured pace in the latter half of 2023, with momentum expected to continue into 2024. Many of the traditional buyers are further prioritizing operational efficiencies and cost synergies to improve margins as a mitigant against their increased cost of capital for acquisitions.

Private equity (PE) backed insurance agencies have been very active in the M&A space in recent years. How do you see them navigating this current economic environment?

PE-backed agencies are typically more acquisitive than their non-PE-backed counterparts, with complex yet optimized capital structures and institutionalized controls in place. PE-backed buyers spent 2023 reevaluating their financial controls to further their understanding of cash flow because of the higher rate environment. Despite challenges, there’s still a mandate to keep growing, so their acquisition activity will ramp back up in 2024 with a renewed confidence, balanced with cautious optimism. Market dynamics will see PE-backed buyers expanding downstream into smaller agencies, which continue to be the fastest-growing segment seeking partnerships with larger firms.

For the acquirers that pitch autonomy, no post-merger operational integration, can you still achieve cross-organizational effectiveness?

I believe buyers need to have a clear and distinct messaging around the level of autonomy after a sale. When you’re doing 25+ acquisitions annually with each firm operating independently, you do miss out on the “layup” efficiencies that a consolidation offers. Operating as one firm becomes unwieldy and the ability to scale becomes a challenge. So, there’s a crucial need for some level of integration and centralization, especially for financial controls and consolidated data around your book of business.

At Vantage, we fully integrate sub-acquisitions into our platform partners, but our platform partners maintain their independent culture, processes and systems. We utilize technology to connect all platforms’ production and financial systems, so we have a consolidated view of all the financial and book of business data at the top level. It’s about finding a balance while fostering cross-organizational effectiveness. The key is integrating where it matters most while respecting the autonomy of our partners.

What advice would you give to sellers or agency owners who are looking to sell in the near term? How can they position themselves to make sure they achieve the highest valuation possible?

My advice to optimize your firm’s valuation is to start by proactively recognizing your identity, culture and goals and then seek partners aligned with these aspects. The initial assessment should prioritize these factors over cash flow or EBITDA [earnings before interest, taxes, depreciation and amortization], as financial aspects will optimize themselves when sellers don’t make valuation the leading point in their approach to finding a partner. Even if they are not planning to sell in the near term, agency owners should regularly reflect on their goals and assess suitable partners. This proactive approach helps prepare for a future sale by forming opinions about potential partners rather than reacting to every acquisition offer. We find that discussions flow smoothly with partners who have informed opinions and goals based on honest selfreflection. It’s about aligning goals and values for a successful partnership.

What headway has Vantage made in the M&A space recently?

We have been very active in finding high-quality platform partners as well as many subacq partners under our platforms. Our platform partners stay economically aligned as we buy a majority stake in their firm, while they maintain a personally meaningful (direct) minority stake. Partnering with us enables our platform partners to become more acquisitive as we become their M&A arm—we build their subacq pipeline, conduct due diligence, structure, finance and integrate the deal.

While our primary focus is on acquisitions, we prioritize a balanced approach between organic and inorganic growth for our partners by providing operational and organic initiatives to supplement their efforts. Our platform partners continue to maintain significantly high organic growth rates, well above industry average. This success stems from our partners’ strong economic alignment with us and their control over their businesses, ensuring continued growth in a sustainable fashion.