With modest declines in November’s inflation numbers and projections that the Federal Reserve may soften the next rate hike at the December meeting – what might this mean for merger & acquisition (M&A) deals for the final weeks of 2022? With December historically being the most active month, and considering the tremendous headwinds this year has presented, it may be just enough positive economic news to help M&A activity in December 2022 end on a strong note.
As of November 30, 2022, there have been 513 announced M&A transactions in the U.S. This represents an 18.5% decrease compared to last year. However, it is expected that the typical rush of year-end deal closings will bring the total number of announced transactions closer to 2019 rather than 2021.
While the overall 2022 M&A deal numbers have declined compared with 2021, taking those figures at face value would not paint the entire picture. Q3 and Q4 of 2021 were the two most active quarters ever recorded, largely due to concerns about a possible federal capital gains tax increase in 2022. Had this not been the case and had some of those deals closed in Q1 of 2022 rather than get rushed in Q4 – the storyline today would be slightly different. For argument’s sake, if we take the average of Q4 2021 and Q1 2022 and apply that to our YTD deal count, the current YTD decrease of 18.5% would be reduced to only 5.9%.
Debt Markets Still Open for Business, Valuations Still Strong
Despite the rising cost and availability of debt capital, larger buyers are still borrowing and looking to make deals. The current economic environment is definitely impacting some, but it is mostly affecting the chatter and possibly being used to negotiate more favorable deals. But valuations are still holding, with multiples remaining at all-time highs. If valuations start dropping, average firms will be the first to feel it. Firms with strong organic growth, differentiated value propositions, and smart leadership will continue to demand premium valuations.
Private Capital Backed Buyers Lead the Buyer Classes
Private Capital backed buyers accounted for 378 of the 513 transactions (73.6%) through November. This trend is expected to remain consistent throughout the rest of 2022 and into the new year as dry powder continues to be deployed. Public brokers have remained consistent with last year’s total deal count, making up 7.0% of announced transactions.
Deals involving specialty distributors as targets currently account for 27.1% of the total 513 deals year-to-date. This portion of the target population has been up 16.6% since 2021, which is anticipated to continue as traditional retail brokers expand into the wholesale and delegated authority space.
Additionally, we have observed a 55.9% decrease in deals done by independent brokers compared to 2021. This can likely be attributed to historically high valuations in the market outpricing brokers who do not have private capital backing and sufficient capital to bring to the table.
Strong deal activity from the marketplace’s most active acquirers has remained constant through November. Ten buyers accounted for 52.9% of all announced transactions observed, while the top three (Acrisure, LLC, Integrity Marketing Group, LLC, and Hub International Limited) account for 21.9% of the 513 total transactions.
- November 2: Specialty Program Group, LLC (SPG) announced its acquisition of Catapult Insurance Solutions (Catapult) assets. Catapult manages a general agency, wholesale brokerage, and Lloyd’s cover holder that currently underwrites and administers premiums exceeding $50 million through niche programs in the residential homebuilding space.
- November 10: Hub International Ltd. (HUB) announced its acquisition of Bridgecreek Investment Management, a wealth management firm focused on high-net-worth clients with over $1 billion in assets under management. HUB’s Retirement and Private Wealth division continue growing, with Bridgecreek representing the 12th wealth management acquisition.
- December 1: K2 Insurance Services has agreed to secure new private equity backing from Warburg Pincus. K2 provides centralized services to MGAs with specialized programs in the specialty commercial, transportation, international, and personal lines spaces. The transaction will lead to the exit of the current private equity sponsor, Lee Equity Partners.
If you have questions about Today’s ViewPoint or want to learn more about M&A activity in December 2022 for insurance agents and brokers, financial advisory, or market intelligence, please email or call Phil Trem, President – Financial Advisory, at 440.392.6547.
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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.