Dynamic Changes in the Specialty M&A Sector

Video Transcription

Hello, my name is George Bucur and I’m a director within MarshBerry’s financial advisory practice. Serving specialty distributors such as MGA’s (managing general agent), MGU’s (managing general underwriter), program managers, and wholesale brokers, we’re here to present an overview of the dynamic changes that we are seeing with specialty distributors. In fact, that is going to be our theme for 2022. Each one of our video sessions, other than interviews, will focus on dynamic changes that we are seeing within the specialty sector because it is no doubt that changes are prevalent and very significantly influencing this industry.

Coming off the heels of MarshBerry’s 2022 Peak conference held in Park City, our annual conference dedicated to specialty firms. It was very prevalent in conversations with a lot of our, over 100, participants that the changes that they are experiencing are unlike any other that we’ve seen in the specialty sector before.

Specifically, let’s focus on the M&A (mergers and acquisitions) activity.  Looking at 2021 as an example, we saw transactions of 148 specialty firms in 2021. That represents over seven percent of the specialty marketplace for MarshBerry’s estimates. Some notable points off of this, transaction activity in 2018 was 72. Going from 72 transactions in 2018 to 148 in 2021 represents a compound annual growth rate or growth per year of 28%. You can see the up and to the right line on your chart. Most notably is going from 123 transactions in 2020 to 148 transactions in 2021, a delta of 25. That was almost exclusively driven by private equity firms that went from 62 transactions in 2020 to 87 transactions in 2021. Now there’s no doubt that M&A interest and acquisition appetite will continue into 2022. The valuation delta, the opportunity for firms to drive value with their clients, and the overall differentiation that specialty firms represent the growth opportunity, in other words, is immense and buyers will continue to have that interest.

The big question mark and the thing that we don’t know is what will happen to interest rates, because as we talked about before, interest rates are critical to driving value due to the amount of leverage that private equity is applying to their transactions. If you have questions as to how the robust M&A environment may be influencing your operations and the other trends that MarshBerry is seeing in the marketplace, please do not hesitate to reach out. Until next time be well.