2022 M&A in Review: Specialty Firms Bucking the Trend

Video Transcription

Hello, I’m George Bucur, managing director at MarshBerry and co-lead of our specialty practice. 2022 brought a lot of excitement and the messaging that you might be hearing in the marketplace is that M&A (mergers and acquisitions) activity and valuations were down materially. Well, one might expect that with the cost of capital going up, inflation going up, and generally speaking that puts pressure on the returns that private equity investors may otherwise receive. But let’s not get lost in the headlines and actually dig into some of the details.

2022 resulted in roughly 725 transactions; that’s a draft number for right now. That is down around 200 transactions from 2021. But I think it’s important to highlight that 2021 sucked some transactions into that year that otherwise would have closed in 2022 because people were concerned around tax changes. Also, when it comes to the activity that we saw in 2022, specific to specialty firms, there were 153 transactions in 2021 and over 160 transactions in 2022. That means specialty transactions went up compared to the retail brokers that went down by over 25 percent. Specialty remains in focus by buyers because of the diversification, the value they bring, and the overall higher growth propensity that they often represent. When it comes to valuations, valuations were effectively flat from 2021 to 2022, and while buyers may be messaging the marketplace that valuations will be going down going forward because of the higher Capital costs that are involved with interest rates and the like. The matter the fact is even in the fourth quarter of 2022 we saw a lot of good valuations that were out there. One thing that is notable right now in 2023 compared to that of the last couple years is buyer’s pipelines are stuffed. And that is different because with the deals getting sucked out of 2021 in the first quarter, the buyers were looking for activity, so the supply demand equilibrium is something that we are monitoring which could lead to a diversification, or say a bifurcation, of valuations between those firms that have very sought after attributes– like high growth, quality management, etc.– and those firms that might not have those characteristics. So that is a trend that we are continuing to monitor and might expect again in a tightening capital environment. If you have questions about how the overall valuation environment may impact your firm in 2023, we highly encourage you to reach out. Until then, have a great 2023.