It seems there is no chance that the M&A market for insurance intermediaries will slow down anytime soon.
When Marsh agreed to pay close to 15x EBITDA for Jelf it was clear that the appetite for insurance brokers remains very healthy. It's an interesting move for Marsh as they signal a dramatic move into the SME market and I fully expect Marsh to support further acquisitions into the Jelf business.
I won't be surprised if one of the other major brokers (Aon, Willis, JLT) replicates the Marsh strategy and looks at an aggressive UK expansion strategy. There is bound to be speculation about bids for Bluefin but there is no indication that AXA have any plans to sell.
At the same time that Marsh are making their move, private equity investors continue to show great interest in the UK broking market. There is no shortage of new ventures to keep M&A activity levels high.
Brendan McManus and Chris Giles are back in the acquisition market with a consolidation strategy backed by Carlisle. They are a significant new player in the market and could generate a lot of activity over the next 24 months.
Peter Cullum relaunched his consolidator strategy with GRP, with David Margrett as CEO. They have a commitment from Penta Capital of £55m with the potential for this to increase to £100m.
PIB and GRP should make a lot of noise over the short term but they are not alone.
Peter Blanc is now at Aston Scott and looking to acquire and so is Tim Johnson at Stackhouse Poland. HG Capital own A-Plan and I presume they want to become more active having brought in a new Acquisitions Director and Max Carruthers as Chairman.
So what does this mean for the owners of brokers?
On the face of it the outlook is great if you are thinking of selling. I certainly advocate investigating this option if it's on the horizon because nobody knows how long conditions remain positive. It depends on the economy remaining stable and investment capital continuing to be in plentiful supply. Even if conditions are good, it won't be plain sailing.
I expect most new acquirers will have on their shopping lists companies which are a bit outside of the traditional broker model. That's because a lot of good businesses have been acquired in the past 10 years but not always with a great outcome. That's not the fault of the selling broker I hasten to add but a lack of clear strategy from the buyers. So, brokers operating in specialist markets will be in demand.
There is another area of M&A activity which I think will attract plenty of interest over the next few years. As insurance markets, both underwriting and broking, show a level of relentless competition which is unlikely to abate, Managing General Agents are receiving more attention from investors. Companies like UK General, Towergate and AJ Gallagher have built substantial MGA businesses and there are many others. However, there seems to be no shortage of small MGAs which could be attractive in a consolidation strategy. Also there is no shortage of experienced underwriters who might be open to new opportunities away from traditional insurance companies.
Arguably, MGAs fit the current M&A appetite perfectly. Almost by definition MGAs are dealing with specialist and niche classes of business, whilst the main stream insures compete for predominantly standard risks. As such, MGAs provide the potential to grow in markets which hopefully deliver enhanced profit margins. I believe competition is pushing the broker market to "invent" new specialist and niche products and markets. The brokers will continue working hand in hand with MGAs and fuel the supply of opportunities for current and future acquirers.
Currently there is incredible hype around FinTech and disruption of the traditional insurance markets. Inevitably change will come although I suspect the insurance market will move more slowly than other parts of financial services. Nevertheless, I don't think this changes the aspirations of investors nor the opportunities whether buying or selling. The intermediary market has been incredibly resilient and will continue to be so. Expect the next few years to continue to surprise through the volume and type of deals to be done.
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