Industry the November 2013 issue

What Fourth Quarter Holds

Confie Seguros paces market through first three.
By Phil Trem Posted on October 30, 2013

According to the U.S. Department of Commerce Bureau of Economic Analysis, real gross domestic product grew by 1.4% in second quarter 2013 from the same quarter one year ago. Additionally, MarketScout is reporting average p-c rates increased 4% in July.

Both stats are likely reasons the average agency in the U.S. reported organic growth of 6.7% for the 12 months ending June 30, 2013, compared to 4.9% for the calendar year 2012. As organic growth continues to trend up, most buyers will likely become more selective and potentially decrease the market demand. We are likely seeing some of that slowdown in 2013, but we do not feel it is the primary driver of the low deal count. The industry is still in a hangover from the capital gains change-driven frenzy in 2012. Most buyers will tell you they are still aggressively looking for new deals and are planning on using their improved growth and profitability numbers to help fund their continued expansion.

Fifteen deals were announced in September, bringing this year’s total to 132, down 60 from the same period last year. The average number of fourth-quarter deals completed from 2005 to 2011 (excluding the abnormally high fourth quarter 2012) was 70. So if the industry has an average fourth quarter, we will have more than 200 deals in 2013. Based on current deal flow and activity, we believe it is likely the industry will reach that benchmark.

Private equity-backed Confie Seguros (ABRY Partners) continues to pace the market in total deals with nine completed through September. It also announced three additional transactions in early October. Confie completed its largest deal ever by acquiring the retail auto insurance unit of Affirmative Insurance Holdings. The unit includes two premium finance companies and 500 employees working in 195 offices in nine different states. The deal could reach a maximum purchase value of $120 million. When the deal officially closes, Confie will have 550 locations in 16 states with projected 2013 revenue of $300 million. (See feature story on Confie Seguros in this issue.)

Private equity backed AssuredPartners (GTCR) acquired the Dwyer Franchise Insurance International in September bringing its deal total to nine. This marks the 37th announced deal by AssuredPartners since its inception in 2011.

Rounding out the top five are Digital Insurance (backed by Fidelity National Financial) with eight deals, Hub International (Hellman & Friedman) with six deals, and Arthur J. Gallagher with five. Both Hub and AJG have been very active in the international markets as well, but their tallies above represent U.S. targets only.

Activity will likely increase over the coming months. What is yet to be seen is if deal terms and pricing will continue to hold at the watermark levels that have been experienced during the past 18 months. High-growth independent agencies are expected to still be able to command a market premium, and others will aspire to achieve their levels of success and value.

Phil Trem President of Financial Advisory, MarshBerry Read More

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