This week, we had the opportunity to connect hundreds of clients to get a pulse on their business, understand their concerns, and leverage each other’s experiences to help navigate the current environment. The Connect Network meets in person twice a year and offers members access to an outside board of advisors comprised of non-competing peers operating within the same industry. During “normal” economic times, these peers offer invaluable experience-based advice.

With social distancing in place, and turbulent economic conditions domestically and globally, we believed providing a forum for peer exchange was more important than ever. The traditional two-day event was converted to virtual sessions enabling like-minded members to lean in and learn from each other at a time that many have otherwise been isolated from colleagues, friends and families. By providing a virtual opportunity to talk, listen, share experiences and feedback, our Strategic Issues Groups (SIG’s) were more than just a business network this week. It provided a connection to the outside world with those that are going through a similar experience.

So, what is the current State of the Industry? If you ever attended a MarshBerry event in the past, chances are you have seen our firm’s presentation of the State of the Industry. If you attended in the past 5-6 years, you’ve probably heard that “this year” is as good as it gets. Then, inevitably it got better and better, year in and year out. The data we collect is largely historical looking and through mid-March, it was still telling the same story: valuations on the rise, strong EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) margins, a hard market driving organic growth, etc. But conditions changed swiftly and significantly with COVID-19. What our industry is facing now, with economies across the globe having largely been shut down for more than a month, is nothing short of staggering – the Black Swan event of 2020.

In just the last 30 days:

  • Federal Reserve lowered federal funds target range by 100bps to 0.-0.25% (March 16).
  • Federal Reserve launched $700b quantitative easing program (March 23).
  • Shelter in place orders enacted, closing businesses and schools across the nation.
  • Coronavirus Aid, Relief, and Economic Security (CARES) Act appropriated $2.2 trillion in loans (April 9).
  • More than 26.5M Americans filed for unemployment in the preceding five weeks (April 18).
  • Paycheck Protection Program gets additional $320B (April 24).
  • Stock Market is down 20.6% from its peak.

Buyer appetite for Mergers & Acquisitions remains stable, however there has been a recent shift to high-quality firms, where valuations are holding with the last several quarters. Average firms are seeing a swifter decline in value. Firms with significant exposure to industries that have been hardest hit are seeing buyer interest pull back or a significant portion of the proceeds hinge on future performance.

Private equity (“PE”) backed buyers, which have been driving market demand and valuations in the last several years, have available capital to do deals as many recapitalized in the last 2-3 years. However, they will run out, and if the high yield debt markets are effectively closed when they do, then we may see multiples tumble and activity slow significantly. We are hearing from many PE backed buyers that they are more interested today in doing a larger number of smaller deals and fewer larger deals in order to spread their capital and diversify their risk.

The outlook is obviously less certain today than it was 45 days ago when 2020 looked like it could be a banner year. The presidential election cycle adds even more uncertainty to what the future economic conditions will look like for 2021 and beyond. With premium forbearance, record unemployment, a reduction in business income, bankruptcies and closures looming, it’s possible that the insurance brokerage industry will face their worst year of revenue declines in generations. So, the State of the Industry is hard to define right now, but the industry itself is resilient and is likely to fare much better and stronger than other industry verticals.

If you have questions about Today’s ViewPoint, or would like to learn more about MarshBerry’s Connect network, please email or call John Wepler, Chairman & CEO at 440.392.6572.

Investment banking services offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440.354.3230).