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Mar 31, 20223 min read

Sica | Fletcher Completes Comprehensive Analysis of Multiples Paid in Agency Acquisition

As the leading strategic advisor to the insurance brokerage industry, Sica | Fletcher advises on substantially more transactions than any other advisor in the industry. In our strategic advisory business on the buy-side and sell-side, we have advised on nearly 400 closed transactions over the past three years. We are delighted to announce that we have aggregated this data into the most comprehensive study in the history of our industry on multiples paid in insurance agency and brokerage acquisitions.


Background

Over the past several years, there has been an enormous wave of M&A transactions in our industry as agency principals have been capitalizing on the unprecedented demand for insurance brokers. We at Sica | Fletcher have written numerous articles and blogs on our website describing the explosion of private equity investment in our segment, the resulting dramatic increase in demand for agencies and brokerages of all types, the continuously rising multiples paid in M&A transactions, how transaction structures have changed as a result of the unprecedented demand, and the enormous errors which potential sellers often make in trying to sell their business without a strategic advisor.


With our new report, we have systematically and comprehensively analyzed the data which support these contentions. If you have any interest in M&A transactions for insurance agencies and brokerages, you will not want to miss this analysis.


The methodology was quite simple. Our analytical team at Sica | Fletcher crunched the data in our database of transactions and analyzed the results by a number of criteria including:

  • Year of transaction

  • EBITDA multiple and multiple of revenue paid

  • Amount of EBITDA

  • The operating margin of the seller, i.e., pro forma EBITDA divided by revenue

  • Whether the seller used an advisor or not

Conclusions

The conclusions of the study are very striking. They include the following:

  • Multiples Paid Have Dramatically Increased - Each year over the past three years, the average multiples paid in insurance agency and brokerage M&A transactions has increased. These levels have now reached unprecedented, all-time heights. The amount of the increase is quite striking (nearly 13% over the past 3 years) and has spanned the entire industry, from the sale of small agencies to private equity recapitalizations and mega-sales.

  • Size of Agency Has a Direct Impact on Multiple Paid – There is a distinct linear relationship between agency size and EBITDA multiple. Simply stated, the larger the EBITDA, the higher the multiple paid. In 2021, for example, the EBITDA multiple paid in advisor-led transactions for companies with over $4 million of EBITDA was 35% higher than for those companies with under $1 million of EBITDA.

  • Using an Advisor Has an Enormous Impact on the Multiple Paid – Advisor-led transactions traded at substantially higher multiples than deals in which the seller did not have an advisor. This disparity is striking and has actually increased over time. The disparity was especially evident in transactions for smaller and mid-size agencies. As an example, in 2021, the average EBITDA multiple paid in advisor-led transactions for companies with less than $1 million of EBITDA was 52% higher than when there was no sell-side advisor. And this did not take into account the calculation of pro forma EBITDA, which is in itself an area where sellers typically are at a disadvantage to buyers when they do not use an advisor.

This is the one study on insurance agency and brokerage M&A you will want to review. If you would like a copy or if you would like to have a discussion about your strategic options – please email or call us:

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