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The following report details insurance brokerage M&A multiple averages for H1 2024. Our research team averaged the information using data from our Sica | Fletcher index, which monitors approximately 70% of insurance sector transactions. We split the averages presented below according to insurance industry subsectors and brokerage sizes to provide a more accurate estimation of multiples.
Insurance Brokerage M&A Multiples, 2024
The following sections offer additional context for the data in the table above by outlining the current insurance brokerage M&A market and providing insights from our team to make selling your brokerage smoother and more profitable once you get started.
Insurance Brokerage M&A Multiples: Market Overview
The 2020s have proven to be a complex market for insurance brokerages. While the cost of debt has increased to the point that buyers often acquire brokerages at an initial loss, insurance brokerage M&A multiples have not only held steady but are actually seeing all-time highs.
Insurance Brokerage M&A Multiples vs. Interest Rates
These two factors suggest buyers now see brokerages as reliable and powerfully resilient investments, a perception likely attributable to:
The compulsory nature of insurance. Because several kinds of insurance are legally required (e.g., health, auto, and professional liability), brokerages enjoy the financial security that comes with guaranteed buyers.
“Premium Inflation.” Over the last two years, as interest rates have continued to rise and battling inflation has become a greater priority, most brokerages have been forced to raise premiums to cover their overheads. This means brokerages are generating more revenue now than ever before.
Streamlined Operations. Brokerages used to require extensive staffing to cover various policy types and carrier relations. However, the brokerage's tech stack now handles many of these job functions, which significantly improves the bottom line and increases profitability.
Because these qualities have attracted such a large number of buyers, sellers in 2024 have the advantage of a very high level of competition, which allows them to leverage offers against each other to get a more favorable payout. Of the transactions we observed, most brokerages entering the market saw approximately 8-10 offers per deal.
On the other hand, deal volume has seen small dips and valleys since the start of the economic downturn in H2 2022, as depicted in the graph below:
Insurance M&A Deal Volume, 2020-2023
This indicates that buyers in 2024 are happy to pay more than before for insurance brokerages (and buy at a loss, in some cases). However, these buyers are also being exceptionally picky about who and how they choose to acquire. Although we expect volume to pick up later this year, assuming the Federal Reserve holds to its promise to lower interest rates sometime in Q3-Q4 2024, there are a couple of things sellers should anticipate moving forward.
Equity Is the Name of the Game
Using equity in place of cash payouts has become the M&A standard across all industries over the last 10 years, now comprising approximately 90% of the payouts in modern insurance M&A deal structures. This means that sellers seeking a full cash payout will likely be disappointed. However, it does present some serious opportunities for those attempting to maximize their overall benefit from the transaction.
Our biggest note here? Pay attention to how the equity a buyer offers is actually valued. We’ve advised on certain deals in which a buyer explicitly informs our client that the equity they offer is valued privately by the buyers themselves. In this way, private companies, in particular, may benefit from not having an observable stock price.
In contrast, the equity buyers offer for your brokerage should be independently valued according to one of a few methods:
Equity Valuation Methods
Expect A Longer Deal Duration
An M&A transaction used to take between 6-12 months, whereas the current average timeframe has expanded to between 9-18 months. We ascribe this increase to two interlocking reasons:
Equity has become more widely used in insurance M&A deals (see section above).
Insurance brokerages operate on a much more advanced capital structure than they used to, meaning not all equity is the same.
Equity used to consist of senior debt (i.e., debt that is direct to the brokerage owners and takes precedence over other forms of debt) and common equity (i.e., the amount all common shareholders invest in the brokerage). However, these larger debt categories are now divided into different classes and subcategories, all of which impact who gets paid and in what order.
The expansion of modern capital structures means that M&A advisory teams put in significantly more work when evaluating acquisition offers, resulting in a longer deal duration. Sellers, then, should be prepared to be patient and work with an extended timeline in mind when considering whether or not they are ready to go to market.
Securing the Best Insurance Brokerage M&A Multiples
The complexity of the 2024 insurance brokerage M&A multiples may make it seem difficult to know your next steps, but we can tell you that step 1 is remarkably clear: you need to speak with an M&A advisor. Having someone in your corner who knows the industry inside and out will ensure you get the most for your brokerage. As one of the most active M&A advisory firms in the insurance sector, our team is best poised to get your brokerage the payout you need in a timely manner.
Reach out to us using the contact form for this website or the contact information below.
About Sica | Fletcher: Sica | Fletcher is a strategic and financial advisory firm focused exclusively on the insurance industry. Founders Michael Fletcher and Al Sica are two of the industry's leading dealmakers who have advised on over $16 billion in insurance agency and brokerage transactions since 2014. According to S&P Global, Sica | Fletcher ranked as the #1 advisor to the insurance industry for 2017-2023 YTD in terms of total deals advised on. Learn more at SicaFletcher.com.
Contact: Mike Fletcher
Managing Partner, Sica | Fletcher