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The 2024 insurance M&A market has changed substantially from just a few years ago, with potentially staggering implications for the future of insurance M&A transactions. The following article details the major trends we’ve identified in the current market and provides prospective sellers with a few insights to help them secure a favorable payout.
Insurance M&A Transactions in 2024
The insurance M&A transactions we have observed thus far in 2024 indicate larger trends in the sector. Two in particular stand out:
Buyers are purchasing agencies and brokerages at a loss for their resiliency as investments.
EBITDA multiples for insurance agencies are higher than they have ever been.
Predictions in H2 2023 suggested that 2024 would be a year of slow recovery, largely dependent on the Federal Reserve’s decision to cut interest rates. Although the current prediction at the time of writing is that this cut will occur in late September, the reality is that it hasn’t happened yet and has already been delayed once.
That being said, we have seen some signs of said recovery. Deal value in H1 2024 has seen modest to moderate rises from $270.4B in H2 2023 to 287.4B. Deal volume has experienced a drop from 2023. However, our team notes that this data is skewed by a drop in megadeals masking a modest increase in volume for deals <$5M in value.
Buyer and Seller Strategies Have Changed
Insurance M&A transactions in 2024 are marked by two specific changes to buyer and seller strategies:
Buyers are looking for smaller, self-represented sellers to purchase at discounted prices.
Sellers are remaining patient and working with M&A advisosr to identify areas of opportunity.
Buyers are facing the biggest challenges in current insurance M&A transactions. In addition to the high cost of debt interfering with their bottom line, they also have to contend with a buyer pool that’s larger than ever before, with 50+ buyers in the current pool where there used to be ~5. The following diagram breaks down their strategies as we understand them:
Insurance M&A Transactions: Buyer’s Strategies
This leads us to the strategies for sellers who are currently in a position to take advantage of this market. With such a high level of competition, they face the double-edged sword of higher overall valuations vs. a relatively smaller initial payout as equity becomes an increasingly larger percentage of buyer offers.
Equity Over Time in Insurance M&A Transactions
2007 | 2024 |
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Modern capital structures, however, have also changed significantly in the last several years, including various types and classes for categorizing equity, all of which determine who gets paid in what order. For example, here’s a simplified breakdown of what you might find at a private equity firm:
Modern Capital Structure
Equity Type | Explanation |
Senior Debt | Debt tied directly to the company’s principals. In the event of liquidation, senior debt takes the highest priority, partly due to its high risk and partly due to its high claim on assets and cash flows. |
Mezzanine Debt | High-risk, high-reward financing exists between senior debt and equity. Mezzanine financing provides financing without diluting ownership. Sometimes, it includes warrants or options for investors seeking long-term growth in their investments. |
Preferred A | The highest form of equity is typically issued to sellers as part of an insurance M&A transaction. This form of equity typically includes dividends and (most importantly) priority over common equity. |
Preferred B | A lower-priority form of equity is designed as a flexible financing option that still puts the seller ahead of common investors while reducing their exposure to voting/conversion rights in the company. |
Common | The lowest form of equity, common equity, has very limited dividends since it is the last form of equity to receive any payment, although this can vary depending on the company’s profitability. |
In contrast, a company’s debt used to consist simply of senior and common equity, making it much easier to assess the actual value of a buyer’s offer when it included equity. Once you understand the different elements that comprise an offer’s total value, you must also question how the equity on offer is valued.
Although sellers are in a good position to sell, they need to be wary of the equity that’s being offered. Avoid any offers where the valuation method for the equity offered isn’t transparent, and never believe an offer that is “privately” or “independently” valued (a real thing that happened to one of our clients) by the buyer.
Multiples Remain High, Despite Interest Rates
The typical trend in insurance M&A transactions is that when interest rates are high, and the cost of debt is high, the multiples seen in deals across the board go down. This is because buyers will effectively low-ball sellers to make up the difference from the cost of the debt required to buy them.
By contrast, the market in 2024 features a high interest rate (and a high cost of debt, by association) accompanied by high EBITDA multiples.
EBITDA Multiples vs. Cost Of Debt, 2020-2024
Although this phenomenon has never before been seen in insurance M&A transactions, our team cites two reasons why the current market looks the way it does:
Resiliency. Buyers now see agencies and brokerages as more resilient investments, due in part to the inherent necessity of insurance, as well as structural changes in their tech stack and business model that increase their resistance to macroeconomic strain.
Changes in the buyer pool. Whereas private equity made up a small minority of buyers some 20 years ago, they make up more than 90% of insurance M&A transactions in 2024. These buyers are interested in the financial profitability of their returned investment post-closing, which means they are willing to purchase agencies at a loss now if they see the possibility of profiting from them in the future.
In short, insurance brokerages are seen as a more resilient investment, which is of particular importance to the dominant buyer group in the insurance M&A space. This has led to very high valuation multiples (~11.5x EBITDA) for insurance agencies:
Insurance M&A Transactions: Valuation Multiples, 2024
Multiple | Agency Size (Revenue) | ||
Small ($500k - $2M) | Mid Market ($2M-$10M) | Large ($10M+) | |
EBITDA | 10.2x | 11.5x | 12.8x |
Revenue | 3.8x | 4.1x | 4.5x |
SDE | 7.9x | 9x | 10.5x |
Overall, insurance M&A valuation multiples are still on a slow rise, experiencing a 5% increase in North American numbers since Q4 2023. This places them perfectly in line with expectations of 2024 as a year of “slow recovery” from the economic downturn of the last two years.
With that in mind, the next section details a few things our team recommends for sellers who are considering taking their agency or brokerage to market in H2 2024.
The Sica | Fletcher Take
The reality is that insurance M&A transactions aren’t what they used to be; more advanced capital structures have made equity into a problem that requires a great deal of time to accommodate, resulting in longer deal durations and smaller cash payouts.
The following sections detail our team’s advice for agency owners considering a transaction.
1. Get an Advisor
Having observed the trend of buyers actively looking for self-represented agencies and brokerages, it's important – now more than ever – to ensure you retain adequate representation before taking your company to market.
When selecting an advisor, consider the following:
Reputation. Many firms represent companies that aren't nearly ready to go to market just to collect retainers. Look at industry publications and data centers to identify which advisory firms have the best reputations.
Activity. Firms that handle a significant volume of insurance M&A transactions have analyzed a larger number of buyer offers and LOIs. Such experience makes them more effective at evaluating the offers you receive for your company.
Senior Attention. Larger firms often seem more accomplished, but they typically assign cases to junior team members. Boutique firms usually operate with a smaller staff, which means you are more likely to work with one of the firm's principals.
If you aren't sure where to begin when selecting an advisory firm, an initial consultation is a good place to start. Our team is available to speak with agency owners to give you an idea of whether or not your agency is sellable.
2. Settle In for a Long Deal
As previously mentioned, insurance M&A transactions take significantly longer now than in past years, stretching to an average of 18 months when it used to take around 12. This means that insurance agency owners entering the market should be prepared to spend the remainder of the year – and most of 2025 – evaluating offers and reconfiguring negotiations.
Insurance M&A Transactions: Deal Duration by Stage
Deal Stage | 2007 | 2024 | |
Valuation | 1-2 Months | → | 1-3 Months |
Marketing | 2-4 Months | → | 3-5 Months |
Evaluating Offers | 1–3 Months | → | 3-5 Months |
Due Diligence | 1-2 months | → | 3-4 Months |
Final Negotiations | 1 Month | → | 1-2 Months |
There’s not much more to our advice than this. Remember that someone is usually happy to offer you a way out when it benefits them, but this rarely, if ever, helps you. Sit back and let your advisor lead the way.
3. Know Your Goals
Understanding what you plan to get out of selling your company has always been a critical point, but the market of 2024 makes it especially important for two reasons:
PE firms (the most common buyer in 2024 insurance M&A transactions) are often indifferent to your goals.
Deal duration takes even longer when you aren't sure about what you want.
Nearly 90% of insurance M&A transactions in 2024 deal with private equity firms, so it's critical to understand who these buyers are and what their goals are.
Insurance M&A Transactions: Common Seller Goals
Goals | Explanation |
Maximize Payout | The seller seeks the largest possible payout from an insurance M&A transaction over time. This goal often prioritizes buyer offers that are heavy on milestone-based earnouts and equity, which allows them to grow their profits over time. |
Retirement | The most common seller goal we see. These sellers are ready to settle down and enjoy their golden years in peace. They are also looking for the maximum payout, but concern for their agency’s legacy places greater emphasis on the buyer’s goals. |
Succession/Management Changes | These sellers may be considering a management change or wish to change careers. These transactions are often buyouts that involve post-closing employment contracts. |
Sell Quickly | These sellers need a settlement as quickly as possible, which can happen for several reasons, most of which are personal (e.g., paying off personal debts, investing in a new opportunity). These sellers face an especially difficult position in the current insurance M&A market and will likely have to deal with a smaller payout. |
Seller goals are another critical reason for having an M&A advisor on your team when you go to market with your agency. One of their central responsibilities is to help anchor you during the process and keep your eye on your goals while evaluating buyer LOIs. Without this help, sellers can get easily distracted by offers that, while lucrative, lead them in a direction that doesn’t align with their goals.
Finding The Right Partner
Most importantly, the deals discussed above suggest that it’s more important than ever to have a knowledgeable M&A advisory firm on your side if you plan to sell. In fact, our data shows that self-represented agencies and brokerages earn 30% less on average than those who have representation. In fact, we’ve observed buyers who are now actively seeking self-represented companies in the hopes of capitalizing on a cheaper insurance M&A transaction.
That’s why having a partner like Sica | Fletcher makes all the difference. Our team represents more agencies and brokerages in a year than any other firm of its size, striking deals for SMBs to over $1B. Contact us here or use the contact information below to discuss a future partnership.
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
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