Today's Viewpoint: A MarshBerry Publication

FOUNDATION RISK PARTNERS INVESTMENT AND THE LATEST M&A MARKET UPDATE

M&A activity starts to heat up as the industry heads into the back half of the year – starting with a MarshBerry advised investment between Foundation Risk Partners and Partners Group.

Private Capital Continues Investment Into Insurance Distribution Space

Private capital firms are continuing to look to the insurance market for investment opportunities. Foundation Risk Partners (FRP), a leading retail insurance broker, announced yesterday that they have accepted an investment by Partners Group, a leading global private markets firm. This most recent example supports the philosophy that firms who optimize efficiencies and position themselves for growth continue to be attractive to PE-backed buyers.

FRP’s tremendous growth over the past five years has been driven by their market innovation, integrated communications platform, and commitment to delivering better outcomes for their clients. This new investment will enable FRP to grow more efficiently by integrating acquisitions and broaden their geographic reach. MarshBerry was one of the advisors to FRP in this transaction.

M&A Market Continues to Thrive but Questions on Valuation Continue to Linger

The market continues to see fluctuations in both the U.S. and global economies. On a domestic level, there have now been two straight quarters of decline in the Gross Domestic Product (technically a recession), rising inflation, rising interest rates to combat inflation, and the federal government’s sweeping economic legislation under the Inflation Reduction Act of 2022.   

All of this continues to create tumult in the stock markets, and concerns about the economic challenges the market is currently facing. Questions surround whether the short-term economic outlook and higher interest rates will impact the insurance distribution industry merger & acquisition (M&A) activity.  

The broader outlook still looks very favorable. Buyers continue to have a large acquisition appetite and potential sellers are looking for partnerships that help them further their business models. MarshBerry continues to closely watch the interest rate environment to understand what will happen with demand if the cost of capital continues to rise. 

The good news on this front is that many of the buyers raised a significant amount of debt over the last nine+ months and have enough dry powder to continue acquiring into next year – and for some into the summer 2023. At some point, buyers will need to pull down additional capital from the debt markets and the cost of that borrowing will be greater than what we have grown accustomed to.

Valuations are expected to continue to hold firm at the high watermark levels seen in recent months and years. The waters get a bit murkier as we look to mid to late 2023. It will be important to keep a keen eye on inflation and interest rate levels to see how big of an impact this might have on the brokerage industry.  

Market Update

As of July 31, 2022, there have been 263 announced M&A transactions in the U.S. The current volume of deal announcements represents a 25% decrease compared to this time last year. However, there have been consistent increases in monthly announcements since March of this year. Over the last three years there has been a strong increase in deal activity as fourth quarter (and year end) approaches, so the 2022 deal count is anticipated to close the year out strong.

Private Capital backed buyers accounted for 194 of the 263 transactions (73.8%) through July, remaining atop the various buyer classes. As previously mentioned, this trend is expected to remain consistent throughout the rest of 2022 as dry powder continues to be deployed. Public brokers have remained consistent with last year in terms of total deal count, making up 6.8% of total announced transactions.

Strong deal activity from the marketplace’s most active acquirers has remained constant through July. Ten buyers accounted for 54.9% of all announced transactions observed, while the top three (Hub International Limited, Acrisure, LLC, and BroadStreet Partners, Inc.) account for 22.8% of the 263 total transactions.

Notable transactions:

  • June 30: Patriot Growth Insurance Services, LLC announced its acquisition of BMT Insurance Advisors (BMT). Based in Philadelphia, PA, BMT was previously a business division of WSFS Financial that provides personal and commercial lines with specialization in educational institutions, small businesses, non-profits, and social service organizations.
  • July 13: Specialty Program Group (part of Hub International) announced its acquisition of ESP Insurance Brokerage. ESP is a program administrator for the sports, events and entertainment industries. The firm’s coverages insure over 850,000 youth sports participants and had insured limits of over $1.5B across special events of all types.

If you have questions about Today’s ViewPoint or would like to learn more about M&A activity for insurance agents and brokers, please email or call Phil Trem, President – Financial Advisor, at 440.392.6547.

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

Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.  Scorecard year-to-date totals may change from month to month should an acquirer notify MarshBerry or the public of a prior acquisition. 2022 statistics are preliminary and may change in future publications.  Please feel free to send any announcements to M&A@MarshBerry.com.

Source: S&P Global Market Intelligence, http://www.insurancejournal.com, http://www.businessinsurance.com/ and  other publicly available sources.

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