2018 Proves to Be Another Record-Setting Year
Insurance distribution mergers and acquisition (“M&A”) activity has shown no signs of slowing from its record 2018 pace through the first four months of 2019. Year to date through April, there have been 198 announced transactions within the space, ahead of the accumulation last year of 182 announcements thus far. These numbers suggest an even more dramatic increase in activity than may be apparent at first glance.
Typically, annual year to date totals lag the previous year as announcements are made retroactively for the previous month’s activity. So far in 2019 however, announcements have outpaced the reported numbers from the prior year, despite the fact that many deals are announced on a delay. In total, there were 580 M&A transactions announced in the insurance distribution industry during 2018. Could we see more than 600 in 2019? Perhaps even north of 650? Only time will tell, but it’s looking possible. Deal values in the space have not changed significantly in the first quarter of 2019 compared to the prior year. MarshBerry calculates multiples on a rolling last twelve months’ (“LTM”) basis, so the effect of one quarter of deal activity is muted somewhat when comparing the LTM ended 3/31/19 with the calendar year 2018 results. Overall, the average transaction was priced on a multiple of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBTIDA”) basis at 10.86x including base purchase price, realistic earnout potential and maximum deal value potential. This compares to the 2018 average transaction total potential deal value of 10.85x EBITDA. The average seller received 8.58x EBITDA in base purchase price during the 1Q 2019 LTM period, unchanged from 2018.
Overall, it seems that continued strong demand from buyers, largely private equity backed but also from independent and public brokers, is setting deal values at historical highs. Consolidation among the largest brokers continues as well, with Marsh & McLennan Companies, Inc. completing its previously announced acquisition of Jardine Lloyd Thompson Group plc and announcing its acquisition of Lovitt & Touché, Inc, one of Business Insurance’s Top 100 brokers during 2018 based in the domestic southwest region during the first three months of the year.