Industry the November 2024 issue

Big Buyers Selling to Bigger Buyers

As the brokerage industry continues to consolidate, is the buyer pool shrinking?
By Phil Trem Posted on October 31, 2024

Could this signal a trend toward similar strategic partnerships?

Marsh McLennan and Aon, respectively the first- and second-largest insurance brokers in the world, continue to grow both organically and through aggressive acquisition strategies.

On Sept. 30, Marsh McLennan announced an agreement to buy McGriff Insurance Services for $7.75 billion through its Marsh McLennan Agency (MMA). McGriff, an affiliate of No. 7-ranked U.S. broker TIH Insurance (formerly Truist Insurance Holdings), reported $1.3 billion in revenue over the past 12 months. The deal is expected to close by year-end and provides MMA a deferred tax asset worth approximately $500 million.

This announcement comes only five months after Aon completed its $13 billion acquisition of middle-market property and casualty broker NFP, previously the No. 13-ranked U.S. broker. NFP, no longer a unique buyer, has completed over 200 acquisitions since 2018.

Why would a PE-backed broker sell to a strategic firm? There could be any number of reasons, ranging from strong strategic alignment and mutual synergies, to simply an attractive offer amid high valuations. There’s also likely attraction to joining a global broker as this industry stretches beyond U.S. borders.

The number of private capital-backed buyers in the insurance brokerage space hit a high-water mark in 2022 with 52 unique buyers, a figure matched in 2023—more than double the number only 10 years ago. But this year has been bogged down by the high cost of capital and a turbulent economic environment, reducing the number of unique private capital-backed buyers to just 41 through the third quarter.

What might the trend of “big buyers selling to bigger buyers” mean for sellers? It certainly could shift market share to a more select group of buyers, changing the competitive landscape. That select group of buyers also means potentially less demand and a more balanced market versus the supply of sellers. And if demand drops, valuation multiples could follow.

For now, sellers still have robust options. The number of interested buyers looking to acquire partners or invest in this industry continues to outpace the supply of willing sellers. But as the big get bigger and the top of the food chain consolidates further, the level of deal activity and valuations may not be sustainable for much longer.

M&A Market Update

As of Sept. 30, 2024, there were 490 announced M&A insurance brokerage transactions in the United States. Activity through September trended 8% higher than the 454 transactions announced during the same period of 2023.

Private capital-backed buyers accounted for 358 of the 490 transactions (73.1%) through September. Independent agencies were buyers in 83 deals, or 16.9% of the market. Transactions in which banks were buyers continued to fall, from 18 in 2022 to nine in 2023—an all-time low. So far in 2024, bank buyers have completed four acquisitions. Deals involving specialty distributors as targets accounted for 82 transactions, 16.7% of the total 490 deals in 2024 but a 5.7% percent decrease in transaction share from 2023. This decrease in percentage share may be a trend to watch.

The top 10 buyers accounted for 51.8% of all announced transactions, while the top three (BroadStreet Partners, Inszone Insurance, and Hub International) accounted for 24.9% of the 490.

Notable Transactions

  • September 17: Monarch E&S Insurance Services, a division of Specialty Program Group, acquired the assets of Professional Insurance Executives (PIE), a contract binding and brokerage business based in Garland, Texas. This acquisition enhances Monarch E&S’s position as a leading national contract binding and brokerage platform and supports its goal of expanding into key markets. PIE is known for its strong underwriting expertise and focus on innovation and customer service. The acquisition allows Monarch E&S to strengthen its underwriting capabilities and expand its market presence, while PIE gains access to broader resources to improve service delivery and provide more comprehensive solutions for clients. MarshBerry served as advisor to Professional Insurance Executives in this transaction.
  • September 30: Marsh McLennan announced the planned acquisition of McGriff Insurance Services, aiming to enhance its capabilities across various insurance lines such as commercial property and casualty, employee benefits, management liability, and personal insurance. The acquisition comes amid rising business demand for insurance policies, driven by wage growth and an improving economic outlook. McGriff, founded in 1886, offers services including corporate bonding, cyber insurance, and title insurance. The deal will be funded by cash and debt financing, with McGriff’s team of over 3,500 employees joining Marsh McLennan Agency.
  • October 8: AssuredPartners (AP), a global insurance brokerage, has acquired CoyleKiley Insurance Agency, a Rockford, Ill.-based firm specializing in property and casualty, employee benefits, personal lines, and life insurance. CoyleKiley will operate within AP’s Great Lakes Region, overseen by Regional President Mike Ross. AP Retail President Todd Stocksdale highlighted CoyleKiley’s strong reputation for customer service and community impact, aligning with AP’s values. CoyleKiley, founded in 1955 and rebranded in 1992, views this partnership as a way to access additional resources and expand its network. MarshBerry served as advisor to CoyleKiley in this transaction.
Phil Trem President of Financial Advisory, MarshBerry Read More

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