Record-Setting Pace Continues
A record-setting pace continues in the insurance distribution merger and acquisition (“M&A”) market as the deal count continues to rise. Year-to-date (“YTD”) through June, there have been 280 announced transactions within the insurance distribution space. This compares to 283 announced transactions over the same time period in 2018. While the current total count is slightly lower than it was YTD in June 2018, the YTD total tends to lag behind current activity due to retroactive announcements, which suggests that actual transaction activity is still trending higher than a record-setting 2018.
After analyzing the deal count through the first quarter of 2019, we proposed the possibility of 2019 transactions eclipsing 600, and several months later the market still suggests that this may be within reach. Deal values continued to rise through the second quarter of 2019. Overall, the average transaction was priced on a multiple of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) basis at 10.94x including base purchase price, realistic earnout potential and maximum deal value potential, compared to the Q1 2019 average transaction total potential deal value of 10.86x EBITDA. The average seller received 8.63x EBITDA in base purchase price during the 2Q 2019 LTM period, up slightly from 8.58x EBTIDA 1Q 2019 LTM period. The largest increase can be found in Platform transactions, which is a transaction defined as a seller who is either a large broker or where a buyer is entering a new geography or niche. The base purchase price remained the same as the 1Q 2019 LTM period at 9.80x EBITDA. However, the maximum earnout in Platform transactions increased almost 27%, resulting in a maximum Platform multiple (average) of 12.81x EBITDA.
With a continued influx of capital and new buyers into the insurance distribution space, there is no indication that the demand from buyers, nor the transaction values, will be decreasing any time soon. There have been 44 new buyers identified in 2019 that have announced 76 of the YTD transactions. Of these 44 new buyers, 6 are private equity-backed brokers, which have accounted for 27 of the announced transactions YTD. With what seems to be an ever-increasing acquisitive appetite for buyers and consistent addition of new investors, the M&A market is as active and competitive as ever, which is increasing value for those that are interested in making a sale.