A Race to the Fiscal Cliff Finish Line

The Times Square ball dropped, the clock struck midnight and the champagne flowed. Some were basking in their successes of 2012; others were thinking about their resolutions for 2013. The insurance distribution M&A warriors took a collective breath and reveled in their accomplishments.

Last year was the best by deal count in history with a total of 320 done deals prior to the feared fiscal cliff. The year eclipsed 2008 with its 297 transactions. Fear of higher capital gains taxes proved justified when, as expected, Congress allowed the federal capital gains rates to climb to 20% for individuals with taxable income greater than $400,000.

The late-year market was busier than anticipated with a total of 24 deals in November and an unprecedented 65 in December. That compares to 17 and 34 respectively in 2011.

Arthur J. Gallagher continued to lead the way with 11 deals during this two-month period. The firm ended the year with 35 deals in the U.S., more than doubling the 17 it completed in 2011.

AssuredPartners, new to the buyer party as of late 2011, made a splash this year finishing in second place with 25 deals. This included 10 transactions in November and December. Some of these transactions were foundation acquisitions, and others were bolt-on or spoke acquisitions made by one of its four platforms.

Hub International rounded out the top three with nine deals completed in the final months of 2012. That brings its annual total to 22. One of those acquisitions developed a new platform in Oklahoma with the acquisition of CFR, based in Tulsa.

Brown & Brown and Marsh & McLennan Agency finished the year in a tie for fifth place with annual totals of 12 deals each. B&B had six deals in the last two months of 2012 while MMA ended the same period with five transactions, including formation of its Midwest hub with the acquisition of Brower Insurance Agency of Dayton, Ohio.

While in the midst of this transaction frenzy and what may certainly have been a first, three of our top 10 buyers in 2012 actually sold/recapitalized themselves in the fourth quarter while continuing to complete transactions:

• Confie Seguros Insurance Services completed seven deals in the last few months of the year for a total of 18 in 2012 (fourth in total deals). Its private equity partner Genstar Capital sold its majority interest to Boston-based ABRY Partners.
• USI Holdings Corporation completed two deals in December bringing its annual total to 11. Its private equity partner, Goldman Sachs, sold its majority interest to Canadian-based Onex Corporation (seventh in total deals).
• Digital Insurance completed two deals in November bringing its annual total to eight. It was acquired by Fidelity National Financial, the nation’s largest title insurance company (eighth in total deals).

Rounding out the top 10 are CBIZ and NFP with eight and six deals respectively.

With such a frenetic finish in 2012 and changes in tax implications for sellers, we will likely now see a slowdown from December’s numbers. However, the deal multiples do not appear to be going down, and agency owners are still viewing an external perpetuation as a viable succession plan. When the champagne bottles dry up, expect to see deal activity restart in 2013 with a steady pace.