Investment Banks: Insurance Sector M&A Analysis

For agencies and brokerages looking to grow their businesses prior to a sale, most owners typically opt to work with an investment bank. Insurance sector specializations, however, are skills rarely found on investment bank teams, which tend to specialize across a variety of industries. As a result, agency owners often suffer, sacrificing industry expertise in exchange for the promise of a larger payout at the end of the day.

For that reason, our team created the following analysis, which breaks down how to select an investment bank within the insurance sector and outlines other possible options that agency owners might have overlooked.

Selecting an Investment Bank in the Insurance Sector

Finding the right fit for your agency can be particularly difficult, especially with the traditionally opaque nature of investment banks as an institution. When we consult with clients who are considering engaging an investment bank’s services, we tell them to consider the following factors.

Experience

First and foremost, prospective clients considering an investment bank in the insurance sector should look at the overall reputation of the firm. We recommend looking at three central elements: 

• Years of Experience. The overall tenure of an investment bank suggests that they have the expertise necessary to thrive in a wide array of M&A markets, as well as a large variance in terms of client needs and deal structures. 

• Success Rate/Close Rate. The percentage of total clients that the investment banks have successfully brought to close. Having information on the investment bank’s close rate can (but doesn’t necessarily) indicate their attention to each transaction they take on.

• Client References. Knowing what previous clients have to say about an investment bank can give you a qualitative idea of what working with them is like, such as the level of personal attention or the reliability of their fee structure.

• Awards & Honors. Investment banks that are officially recognized by M&A or industry associations have an established pattern of excellence that has earned the respect of their peers.

Understanding the reputation of the investment bank is critical because, on average, 50% of agencies taken to market are not sellable. Despite this factor, many investment banks will take these agencies on in order to collect a retainer fee, effectively bleeding agency owners dry. Working with a more reputable partner ensures that they are actively working toward meeting your goals for the transaction. 

Team 

The overall size of an investment bank effectively determines who will be handling your transaction. As a general rule, we recommend being wary of any organization that doesn’t give clients access to their principals. Because investment banks typically operate with a larger internal structure, this is an especially important rule of thumb. 

The typical internal structure of investment banks by size works accordingly, with each green check representing team members who are likely to be available to you : 

Investment Bank Internal Structure by Size

Role	Small	Mid-Size	Large
Managing Director/Partner	✅	N/A	N/A
Director	✅	✅	N/A
Vice President	✅	✅	N/A
Associate	✅	✅	✅
Analyst	N/A	✅	✅
Legal & Compliance	N/A	✅	✅
Risk Management	N/A	✅	✅
Operations & Support Staff	N/A	N/A	✅

Fee Structure

Although it makes sense to prioritize what you can afford, the reality is that working with an investment bank always involves a higher fee structure. Investment banks in the insurance sector typically have the following fee structure: 

Investment Banks: Insurance Sector Fee Structure Averages

	Large	Mid-Size	Boutique
Retainer Fees	~$100,000	~$50,000	~$20,000
Success Fees	~1.5%	~3%	~5%
Minimum Fees	~$2M	~$500,000	~$100,000
Advisory Fees	~$500,000	~$200,000	~$100,000
Hourly Fees	~$500/hr	~$400/hr	~$300/hr

By looking at the investment bank’s reputation, team members, and fee structure, prospective agency owners can ensure a more productive (and lucrative) transaction. The next step is to make sure that you actually need an investment bank.

M&A Advisor vs. Investment Bank: Insurance Sector

The term “investment bank” is commonly confused with other M&A service companies. The difference between investment banks and M&A advisory firms, for example, is particularly difficult to understand. The table below provides an overview of the core differences, as well as a synopsis of the client type that’s typically best suited to each.

M&A Advisors vs Investment Banks: Insurance Sector Analysis

Category	Subcategory	Investment Bank	M&A Advisor
Focus & Specialization	Industry Focus	Works across industries	Specialized
	Specialization in Insurance	Generalized	Specialized
Services Offered	Advisory Services	✅	✅
	Valuation Services	✅	✅
	Negotiation Support	✅	✅
	Due Diligence Assistance	✅	✅
	Access to Capital Markets	✅
	Underwriting Services	✅	✅
	Asset Management	✅
Client Relationships	Typical Client Base	Mid-market to enterprise	SMB to enterprise
	Relationship Management	Usually more transactional	Long-term, personalized
	Personalized Attention	Varies	High
Cost Structure	Fee Structure	Fixed, Higher Fees	Flexible, Lower Fees
	Cost Flexibility	Low	Low to Medium
	Overall Fee Level	Higher	Lower
Company Size & Reach	Company Size	Typically larger	Varies
	Geographic Reach	Global	Regional/National
	Resource Availability	Extensive	Limited
Experience & Track Record	Industry Experience	Typically less knowledgeable	Industry Experts
	Market Reputation	Global, financially driven	Niche, market leaders
	Who Is Best Suited?	Because of the higher fee structure and less personalized attention, the primary reason most insurance agencies work with investment banks is to secure funding prior to a sale in order to maximize their payout by growing operations.	M&A advisory firms are typically the go-to resource for agencies and brokerages looking to take their company to market due to their lower fee structure, personalized attention, and market expertise.

Before signing up with an investment bank, insurance agency owners should consider an initial consultation with an M&A advisory firm to determine whether their services are necessary. Often, M&A firms provide these consultations at no fee, making it particularly advantageous for owners seeking to protect their bottom line. 

Do You Need Investment Banks for Insurance Sector Deals?

The simplest answer is, “it depends on whether you need funding/want to grow your agency prior to the sale.” If so, an investment bank might be the best option. For most agency owners, however, the most important thing is to have someone in your corner who knows the industry and will guide you through the deal process. Our team at Sica | Fletcher specializes in the insurance sector M&A, with our principals touching on every deal we manage. Contact us here or use the 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

mjf@sicafletcher.com