MarshBerry Specialty Market Update – October 2020

Video Transcription

Hello, my name is George Bucur. I’m a director within MarshBerry’s financial advisory practice.

Focusing on specialty distributors, we are bringing you this periodic vlog to give you updates as to trends that are impacting specialty distributors in today’s marketplace. Today we’re focusing on valuation. As many of you know, valuations have been at historic highs, and they continue to go up. Now, what are some factors that influence valuation and how does that potentially reflect upon your firm’s value specifically? Well, today we’re going to talk through some of those trends and factors that influence value of specialty distributors.

You can see on the screen that there is a definite delineation between valuations of that of general wholesale brokers, that of specialist wholesale brokers, and that of MGA’s (managing general agent). And that wedge that you’re seeing generally speaks to the valuations we see in today’s marketplace. And there’s various reasons why that wedge exists.

Now when we talk valuation, we talk in the terms of “Pro Forma.” What does “Pro Forma” mean? It means the ongoing cash flows of the organization effectively. And there’s many ways that people talk about valuation, but MarshBerry generally speaks about Pro Forma EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Pro Forma EBITDA is taking your normalized revenue and expenses to arrive at that cash flow and applying EBITDA Multiple. Now when it comes to EBITDA Multiples, there are many factors that influence it. Several of those are on the screen, but there are even more.

Specific to specialty distributors, some of the factors that we are very keen to are concentration risks. Whether you have one carrier, whether you have one distribution partner, whether you have one underwriter or your technology, all those factors potentially represent concentrations that may detract from value. Otherwise, specialty distributors largely represent differentiation, diversification, a higher propensity to growth, and therefore they can receive higher valuations than that of the average retail agent in the marketplace. There are many factors that could be applied and to better understand how valuation impacts your firm, please reach out to MarshBerry to get more information on that specifically.

We at MarshBerry like to say, we help our clients to Learn, Improve, and Realize their value. Thank you for your time today. We look forward to catching up in the near future.