The fifth episode of a five-part series on value maximization for delegated authority and wholesale broker firms. Understanding what drives value is essential, whether a firm wants to stay independent or sell externally. The value of a firm is influenced by many factors. However, there are typically a select few that will most significantly influence a firm’s value. This episode covers overall firm size and underwriting results and how they need to work in conjunction to maximize valuation.
To The Point: een MarshBerry-videoserie
Value Maximization Series: Firm Size & Underwriting Results
december 17, 2024
Video Transcription
Hello, I’m George Bucur, managing director and co-head of MarshBerry specialty practice. Serving specialty distributors such as MGAs (managing general agent), MGUs (managing general underwriter), wholesale brokers, program managers, and cover holders, we’re here today to talk about part five of our five-part series around value and what firms can do to maximize that value.
Today, we talk about overall firm size and underwriting results, a bit of a interesting combination, but somewhat of a paradox. They often times need to live hand-in-hand in order for a firm to maximize their valuation. Now what I’m referring to is the fact that value, generally predicated, on larger firms having higher valuations when it comes to multiples anyway. However, for those firms that have delegated authority, one of the challenges is is that you can’t always grow a program. Maybe the returns just aren’t there for a carrier. Maybe the underwriting results just are not up to snuff. If that’s the case, those firms might need to dial back the growth in certain aspects of their business.
This is why when we talked about part number four, when it got to business concentrations it’s valuable to have multiple streams of revenue coming in from various programs, coverages, lines of business, etc. –getting back to the concept of bigger is better when it comes to valuations. What are firms doing to scale from being a one-trick pony, if you will, to having many bespoke niches within their overall umbrella. Well, a common way that firms are doing that is through underwriter recruiting and/or inorganic growth activity, making acquisitions. We’ve seen many MGAs rise over the last decade using this formula. Specifically, ten years ago there were five delegated authority firms with a billion dollars of premium or more. Today, there’s twenty-two. The fight for relevancy and the evolution of the delegated authority segment continues to evolve, and the recurring theme is that bigger is better and that’s reflected in the valuations.
If you have questions about how you may want to grow your organization and/or maximize the valuation of it, we encourage you to reach out. Until next time, be well.
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