Today's Viewpoint: A MarshBerry Publication

View From The Top 100

What MarshBerry is hearing from the Top 100 brokers

MarshBerry reached out to more than half of the Top 100 domestic brokers to take their pulse on the marketplace, both from an organic growth and from an acquisition perspective. The feedback might surprise you.

On average, respondents are expecting organic growth for calendar year 2020 of just under 5%. While most brokers are anticipating at least a quarter, or in some cases two quarters of declining organic growth (Q2 and/or Q3 most often), the first quarter of 2020 was particularly strong. Additionally, a number of respondents indicated they continue to be up versus last year through the first five months of 2020. Nearly 88% of all respondents anticipate 2020 organic growth to be positive.

The single largest cohort responding to the organic growth question, approximately 35% of respondents, indicated an anticipated 0% – 1.9% organic growth rate for 2020. An additional 22% of respondents estimated organic growth for 2020 would be in the 2.0% – 4.9% range. Taken together, more than half (57%) of respondents believe that their organic growth rate for 2020 will be somewhere greater than zero and less than 5%. Given the economic shock resulting from COVID-19, this result is surprising and further reinforces the stability of the insurance distribution system.

Perhaps more surprising is the number of respondents (31%) that believe that their organic growth will be 5% or greater, with nearly a quarter of these respondents forecasting organic growth greater than 10% for all of 2020. It is important to note, the Top 100 brokers typically have a diversified revenue base across multiple industries, so the strong organic growth while surprising is not necessarily unfounded. Other than those industries such as hospitality, sporting events and restaurants that have been hit especially hard by the lockdown, most other industries are still in relatively reasonable shape; hence the optimism of these larger brokers. To be sure, 13% of respondents believe they will see negative organic growth for the full year, perhaps reflecting the negative effects of insuring these harder hit industries. Importantly, while most of the commentary suggested insurance brokers have yet to feel the full impact of COVID-19 (premium forbearance impact on cash flows, bankruptcies, reduced payrolls, etc.), none are screaming like Chicken Little and many remain optimistic about the future.

When it comes to seeking near-term acquisitions, the Top 100 brokers appear to be as interested as they were pre-pandemic. Eighty percent of respondents indicated that they are “Extremely Interested” in continuing their acquisition program. They are open to introductions and want meetings. Another 8% remain moderately interested in continuing to close deals. Only 12% of the top 100 indicated that they are “Somewhat Interested,” Cautiously Interested,” or that their acquisition plans are “On Hold.”

MarshBerry’s own experience mirrors much of what is outlined in this survey. While we have experienced a more scrutinous due diligence process on behalf of buyers, there are very few cases where a seller has not drawn at least a handful of interested parties to a virtual meeting room to assess, fit and deliver an offer, as they would have pre-pandemic. On the whole, buyers are being more selective with the acquisition opportunities; more time and resources are being dedicated to confirmatory due diligence if there appears to be material exposure to the hardest hit sectors of the economy. Moreover, while valuation multiples do not appear to have decreased materially, some deal structuring has shifted risk of future performance to the sellers in the form of longer earn-outs, live-outs and true-ups in order to substantiate a seller’s ability to maintain its historical earnings power.

Overall, buyers sound optimistic that 2020 will end up producing positive organic growth. Equally important, buyers’ desire to vet potential acquisitions and remain price competitive has not dried up, even in a slow to no-growth environment where the outlook (while positive) is still somewhat hazy.

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

Source: MarshBerry informal survey of buyer sentiment (June 2020)

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Contact Courtney Ferrara
If you have questions about Today's ViewPoint, or would like to learn more about how MarshBerry can help your firm determine its path forward, please email or call Courtney Ferrara, Director, at 440.392.6586.

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