Much like the conclusion of an orchestra’s first movement, the first quarter drew to a close leaving the audience waiting in anticipation for more. Total deal count in March finished at 14, yielding a first-quarter total deal count of 56. Although this total is almost 28% less than last year’s first quarter, it exceeds 2009 and 2010 activity. As the year progresses, buyers continue to fill their pipelines with suitable targets.
Throughout the first three months of the year, independent agencies kept the momentum alive with 28 deals, nine of which were completed by private equity-backed agencies. Other buyers and public brokerages finished with 15 and 11 transactions respectively. Banks must still be in rehearsal as they have been practically non-existent this year. Only one bank has completed a transaction thus far.
Buyers have continued to focus on retail operations, which comprised 87.5% of transaction volume. Retail targets were fairly evenly split between p-c, employee benefits, and full-service agencies at 37%, 33% and 31%, respectively. Geographically, California, Texas and Illinois had the most activity.
Arthur J. Gallagher was the big player in the first movement. This quarter they announced seven deals in the U.S. and one in Canada. Gallagher appears bullish on employee benefits since six of its transactions have been benefits-only agencies. Assured Partners continued its aggressive strategy by announcing four deals in 2012. The new private equity-backed agency has already reached annual revenues of $170 million in less than a year. Only five other entities closed at least two deals thus far, causing many to wonder who will follow Gallagher’s lead.
The current trend of mega blockbuster announcements for wholesale firms has continued with AmWINS Group’s declaration that a majority stake is available for sale in an effort to recapitalize. The private equity team behind the world’s largest wholesaler (in premiums) is hoping to receive a 13x EBITDA multiple for its investment. This could be possible given the recent multiples doled out for such wholesalers as Arrowhead and Crump.me
The first quarter may have ended with fewer deals closed than in the first three months of 2011, but the fundamentals and motivations of both buyers and sellers remain intact. Valuations are increasing, and the backlog of deals is rapidly reaching a tipping point. The pace of deal closings will continue to increase at a more frenetic pace as buyers begin to finalize transactions with the gusto and excitement felt by both the orchestra and audience. The second movement is now underway.
On the international scene, Hub and Arthur J. Gallagher were both busy in Canada. Hub acquired a p-c firm out of Ontario, and Gallagher closed on a benefits-only agency in Calgary, its first in Canada. HSBC and Heng Seng Bank announced their intent to sell various insurance units to ING and QBE for $444 million and $784 million, respectively.