Loading LiveCycle Banners.
  1. News Articles
News Article Details

Insurance Agency M&As Set Record in 2012, On Track for A Strong 2013

Featuring Phil Trem, Vice President, Mergers & Acquisitions, MarshBerry

Posted on 20 Mar 13 by Annie George

Last April we spoke with Phil Trem, Vice President of Mergers & Acquisitions at MarshBerry, about the influx of agency M&A transactions and valuations that took place in 2011 and how he expected 2012 to ultimately pan out. Phil and his colleagues projected 2012 to be a record year for transactions in the industry, not only in total deal count but also in record valuations paid. They were right, with 325 announced deals in 2012 in the United States. We followed up with Phil to discuss “the year of mergers and acquisitions” and to get his take on what we can anticipate for 2013.

MarshBerry is a privately held company that provides consulting services to the insurance industry, including sales management, perpetuation planning, business planning, mergers and acquisition services, information services, and more. Phil has been with MarshBerry since 2010, bringing with him a significant amount of experience in both operations and M&As in the business and technology consulting services arena. He is a key contributor to the success of the firm’s M&A services division, and is responsible for a wide variety of activities including mergers and acquisitions, business planning, ownership perpetuation, and financial consulting. 

Annie George (AG): Last year when we spoke you expected a record year for agency M&As, with the anticipation of a capital gains tax increase, a firming insurance market, and agencies beginning to see organic growth after years of a soft market and declining revenues. You were spot on, it seems like we were reading about one merger or acquisition after another last year.

Phil Trem (PT): “It was a barn-burner of a year for M&As in 2012. As you say, we had anticipated this based on several issues, including the capital gains tax increase. But what further served as a catalyst in helping 2012 end on such an extremely strong note was the government delaying its decision on the fiscal cliff. In the United States we had 325 announced deals, the single-largest year for M&As we’ve seen in the history of the marketplace, with 77 of those completed transactions announced in December. October followed with 32 as the next closest month for deal making.”

In fact, of the 325 deals, MarshBerry was involved in over 50 of those transactions. The majority of buyers were independent agents with 187 deals. This also includes private-equity-backed organizations that are not publicly traded (HUB, USI, Confie Seguros, Assurers Partners, for example). When breaking down the number of deals within this group, 89 were with pure independent agents; 98 were done by private-equity-backed companies. Public brokers were involved with 72 of the transactions. Deals were made across the country, with the majority in heavily populated regions, such as California, Florida, New York, Texas, Illinois, New Jersey, Ohio, and Indiana.

AG: How did the anticipation of a looming capital gains increase coupled with a firming market influence sellers and buyers?

PT: “The anticipated capital gains tax was a big catalyst. The increase from 15% to 20% on the federal level, although not as much as what some may have anticipated, is substantial when you’re talking about a seven-figure sale. Before year-end, sellers were considering whether they would be able to perpetuate internally; if not and they were looking at selling in two, three or five years, with a pending capital gains increase, they could be potentially be giving away millions of dollars in taxes if they didn’t sell. So for many of them it made sense to sell.

“What’s more, with Property/Casualty rates beginning to firm at end of 2011 and throughout 2012, sellers were in a position to maximize the purchase price. In many transactions, the seller receives a guarantee of between 70%-80% of the potential purchase price, with the remaining earn-out typically structured around three years and based on growth. The seller can earn up to another 20-30% of what they were paid if they grow their business. If P/C rates are increasing during their earn-out period, it’s obviously the best time to have sold. You capitalize on the swing in the rate environment and leverage higher premiums to help you hit your earn-out and grow the business. It is tough to sell at the peak of a rate increase because you’ll be less likely to hit the maximum earn-out. Once the peak hits, and you head into a soft market with decreasing rates, it becomes more difficult to achieve the growth earn-out. Not only are you losing clients [because of potential effects of a recession] but you’re also battling diminished premiums.

“When it came to the buyers, as we anticipated, they were fairly aggressive in their pricing. The multiples have increased quite a bit. As sellers were coming to the table at the end of the year, some buyers who wanted to be competitive were highly aggressive with their multiples. Some transactions paid seven and even eight times EBITDA (Earnings Before Interest Tax Depreciation & Amortization) guaranteed at closing – paying 2 to 2.5 times revenue. We haven’t seen these multiples in the industry since banks were driving the marketplace ten years ago.”

AG: What do you anticipate moving forward for agency M&As?

PT: “I don’t think 2013 will be as dominate as last year, but we will still continue to have strong activity. If we look at 2008 through 2011, there were between 240 and 280 deals each year (excluding the 188 deals in 2009 which was the lowest year on record after the financial crisis). We anticipate that 2013 will be at the same level.

“One reason for a steady stream of transactions is that there are buyers still interested in growing through acquisitions, even with organic growth rates up. The average agency experienced an organic growth rate of approximately 4% in 2012. This is good compared to where the industry was in the last several years: In 2011, we were at 2.0%; in 2010 at -.06%; and in 2009 at -2.0%. In 2005-2006, we were hovering at around almost 6% and, although we’re still not where we were seven years ago, we have come out of a very soft market. Agencies are very competitive compared to prior years. Yet, even with this growth does it mean that some buyers can achieve growth organically and not through acquisitions? We’re not seeing this. Significant buyers in this industry are being as aggressive as they have been and are continuing with the same growth strategy as in past years. It’s a competitive marketplace, and many national and regional brokers are still vying for strong agencies. Additionally, you have some newcomers to the buyer arena creating even more competition.

“From a seller’s perspective, a 20% capital gains tax rate is the new normal, therefore if they didn’t choose to sell in 2012, will they wait again to see what happens? Many people think that it is highly unlikely that the rate will ever go down again so you’ll have agencies looking to sell, especially as they are still in the driver’s seat with buyer demand so prevalent. Further, you have aging owners that believe they will not be able to perpetuate the agency, therefore being acquired is a viable solution.

“You have the perfect storm for continued strong M&A activity: A lot of interested buyers looking for quality sellers, continued insurance rate increases for good organic growth and earn-out leverage, and many agencies looking to sell. We won’t hit the same numbers as in 2012, but 250-275 transactions is very realistic for 2013.”

AG: “What should an agency be doing to attract a potential buyer?

PT: “The key is to look at whether the agency is running a good organization. Does it have a quality staff? Even if the ownership is aging, it doesn’t mean that the agency is. Has the agency invested enough in a young staff – in their producers, customer service? At the end of the day, an agency wants to be in a position to be able to choose whether to sell or perpetuate internally. You don’t want to be forced down an external path. Equally so, an organization in a strong position is more attractive to a buyer than one that is being forced into a sale. No buyer wants to acquire a problem; they want to acquire a solution, someone that will help them grow. Buyers are looking for partners that can leverage the resources they bring to the table and help grow the platform they’ve built.

“Another key point is that with organic growth at nearly 4.5%, an agency’s top revenue is no longer under attack from rates being reduced by carriers, but that doesn’t mean we are in a hard market. It’s a better situation now after a prolonged soft market, and it will be interesting to see what agencies do. Will organizations approach this new market with an attitude that they have worked hard over the last years, so it’s time to take a break, keep the status quo, or will they capitalize on market changes?

“It is our view that the time is now to take the necessary steps for future growth if you haven’t already done so. Now is the time to put your organization in a position – whether it’s a year from now or 10 years down the road – to be able to make an intelligent decision as to the future of the business. If you don’t start planning for the future, you won’t likely have the opportunity to make that decision. This means reinvesting in the organization – in people, the infrastructure or a combination of both.”

For more information about MarshBerry and its services, please visit: Or you can contact Phil at (440) 392-6547, or via email at