Specialty broker and underwriting agent transaction activity is down through the midway point of 2023. However, even in the face of constricting capital availability and expanding costs, valuations continue to hold their ground when compared to the historical peak valuations for well run organizations. Within this update we address factors influencing transaction activity and valuations.
To The Point: A MarshBerry Video Series
Mid-Year Update on Specialty M&A Transactions and Valuations
August 2, 2023
George Bucur, MarshBerry Managing Director and Specialty Practice Co-Lead with a mid-year update on specialty M&A transactions and valuations.
Video Transcription
Hello, I’m George Bucur, managing director and co-head of MarshBerry specialty practice. Serving MGAs (managing general agents), MGUs (managing general underwriters), wholesale brokers, and program managers, we’re here to bring you the 2023 mid-year update of what we are seeing with M&A (mergers and acquisitions) transactions and valuations.
And while M&A transactions are going to be down so far for the first six months, coming in at 67, annualized we would expect around 134, compared to that of the prior year where we had 175 transactions, you’ll notice a significant decrease in the overall transaction activity. And while yes, we expect further transactions to close in the third and fourth quarter compared to the first half of this year, we expect roughly 150 transactions of specialty firms at the end of the year –still a decrease of 25 transactions from 2022.
But the real question is, is what is driving this activity? With the tightening capital environment that we saw emerge a little over a year ago, is this due to a lack of capital and buyer interest? The answer is no. Frankly, it’s more of a supply side than a demand side in regards to what is driving transaction activity and valuations today. Specifically, as we dive into valuations, those organizations that have growth rates of let’s say 7-10% or more are still very highly sought after in the marketplace, oftentimes receiving valuations on par or even higher than what we experienced over the last two years, which were all time highs from a valuation perspective. However, on the flip side of the coin, those firms that are, let’s say, under five million of net revenue and growing at a flat to a negative rate are seeing valuations that are meaningfully lower than what we’ve seen in the last couple of years.
We don’t know where the capital market environment will take us and how that will influence the overall buyer and investor appetite over the next 6 to 12 months. But we do know that specialty firms continue to be very highly sought after by many different buyer types in the marketplace; whether strategics, hybrids of retail and specialty firms, whether financial institutions, such as private equity and ventures that are looking to get in the sector, carriers, and others. We continue to see a very high and robust demand for specialty firms because of the attributes that they bring to the table: higher growth rates, differentiation, and overall driving value with their insureds and retail brokers.
If you have questions about how the overall transactions are going within the marketplace and how the valuation environment may specifically influence your operations and what you can do to drive value, we ask that you reach out. Until next time, be well.
MarshBerry is a global leader in investment banking and consulting services, specializing in the insurance brokerage and wealth management sectors. If your firm seeks expert advisory guidance to refine your business strategies, drive sustainable growth, or facilitate a sale, MarshBerry is the ideal partner to support you in making these critical business decisions. Collaborating with a trusted advisor who deeply understands your business and the industry can help you maximize value at every stage of ownership.
