M&A activity in the insurance sector in North America declined in the years immediately following the financial crisis, and has peaked in recent years. We previously reported on the boom in the North American M&A insurance sector in 2016, where Q1 saw a record high in insurance agency M&A deals with 109 transactions reported. These trends continued throughout 2016, which ended with 446 insurance M&A deals, and into 2017, and 2018, which Optis Partners LLC (Optis) reported saw record levels of M&A deals among insurance brokers. Although Optis reported 16% fewer deals in the first half of 2018 than in the first half of 2017, their prediction that this reduction was not an indicator of slowing M&A activity was accurate. By the end of 2018, 626 M&A transactions were announced in the sector, a further increase from the previous year's record-breaking 611 deal announcements. These numbers continue to surprise and exceed the expectations of experts in the field.
Optis reported earlier this month that private equity/hybrid buyers, including "private-equity backed buyers and privately owned buyers with material internal or external acquisition financial support," were the biggest group of buyers in 2018, "accounting for 67% of the deals." The same group of buyers accounted for 63% and 53% of the deals in the sector in 2017 and 2016 respectively, but only for 21% of insurance M&A deals in 2008. Furthermore, Optis reported that property/casualty brokers and agents were involved in more than 50% of all insurance M&A deals in 2018.
A recent article addresses the role that information technology has played in the escalation in M&A activity involving property and casualty insurance brokerages. Experts posit that "acquiring new products, talent and technology are among the reasons behind [increased] M&A activity in P&C insurance" in recent years. They theorize that "some buyers may have a heavy focus on the technology that is being deployed in an organization [and may see a merger or acquisition] as a quicker route to implement technology in their own organization, rather than spend a number of years [and take on significant risk] in developing internally their own technology."
Overall, M&A activity in the insurance sector in North America has sky-rocketed in recent years, and shows no sign of slowing down in the immediate future. As a recent Optis report referenced in a Business Insurance news article highlights, "there is no obvious end in sight for the continued aggressive M&A activity and valuations."
The author would like to thank Brandon Burke, articling student, for his assistance in preparing this legal update.
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