MarshBerry releases results of second specialty distribution pulse survey.
In June 2020, MarshBerry conducted a pulse survey of wholesalers, MGAs and program administrators to gauge perspective on two growth areas amidst the COVID-19 pandemic:
- Growth via acquisition;
- Projected organic growth rates.
As a follow up, MarshBerry conducted a second pulse survey to this same audience at the end of October to determine if sentiment had changed.
For specialty insurance buyers, MarshBerry believes that the strategic need to expand product offerings, augment distribution capabilities, and add additional carrier capacity are collectively helping drive an ongoing appetite for continuing acquisitions. Favorable conditions for accessing the debt markets are also assisting in driving a strong acquisitive mindset. Economic forecasts anticipate the federal funds target rate will end 2021 and 2022 at 0.25%, the effective floor, which will allow acquisition-focused brokers to continue borrowing at historically low interest rates.
As the chart above demonstrates, 67% of survey respondents noted they remained “Extremely Interested” in completing acquisitions during the remainder of 2020 and into 2021. The potential buyers representing “Extremely Interested” and “On Hold” stayed relatively consistent between the two surveys, while those that were “Moderately Interested” tended to turn more cautious on acquisitions as the year progressed.
This year, the industry saw several significant announcements involving specialty distributors:
- Ryan Specialty Group completed its acquisition of All Risks, Ltd.;
- JenCap and EPIC merge to form Galway;
- JenCap Holdings, LLC completed an acquisition of Landmark E&S Insurance Brokers, LLC;1
- CRC Group completed an acquisition of W. Brown & Associates;2
- Worldwide Facilities, LLC completed acquisitions of Clearwater Underwriters and Hunt Jorgensen, LLC.3
In the June 2020 survey, MarshBerry asked specialty clients what their anticipated organic growth rate expectations were for the entirety of 2020. In June, 69% of respondents expected organic growth to equal or exceed 10%, with an additional 8% expecting organic growth of 5%-10%. In the October update, respondents expecting 10%+ growth fell slightly to 65% while distributors expecting growth of 5%-10% increased 10%. These results contrasted with retail brokers, with only 22% of retailers expecting 10%+ growth, and 9% expecting 5%-10% growth.
MarshBerry has discussed extensively how pricing on products placed within the non-admitted markets are experiencing rate increases that regularly exceed 10-20% or more annually, which is greater than the rate increases experienced in the standard lines marketplace. Continued rate increases have significant implications for those firms which have sold recently (or plan on selling in the near future). Specifically, if rate increases continue, sellers believe they may be able to recognize greater revenue and earnings performance making earn-outs tied to financial performance more achievable. Buyers and sellers alike can be optimistic that these rate increases will help cushion the blow of exposure decreases, especially among distributors with concentrations of business in pandemic hindered industries such as restaurants, bars, hotels, clothing and retail, casinos, etc.
MarshBerry’s proprietary data shows that M&A activity in the specialty distribution market is likely to continue well into 2021. Heightened interest in acquisitions from active buyers, as well as optimistic organic growth targets from sellers show that necessary incentives are in place for both parties to continue exploring transactions. If you are a potential buyer or seller thinking of entering the M&A marketplace, 2021 may present your strongest opportunity yet!
If you have questions about Today’s ViewPoint, or about activity in the M&A marketplace, please email or call Gerard Vecchio, Managing Director, at 212.972.4886.
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[1] MarshBerry served as financial adviser to Landmark E&S Insurance Brokers, LLC
[2] MarshBerry served as financial adviser to W. Brown & Associates
[3] MarshBerry served as financial adviser to Worldwide Facilities, LLC in the acquisitions of Hunt Jorgensen LLC and Clearwater Underwriters
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