Why Are Specialty Distributors Selling? Politics & Taxes
MarshBerry Director, George Bucur, focuses on serving specialty firms and provides perspective on many factors influencing transaction activity, deal structure and valuations. This three-part series breaks down why there is an upward trend in specialty distributors entering the M&A landscape.
Video Transcription
Hello, my name is George Bucur. I’m a director within MarshBerry’s financial advisory practice.
Serving specialty distributors such as MGA’s (managing general agent), MGU’s (managing general underwriter), program managers, and wholesale brokers, we are bringing you this three-part series that relates to why specialty distributors are going through M&A (Mergers & Acquisitions) transactions.
2020 has been a very resilient year in regards to number of M&A transactions for specialty distributors. For 2020, as of the time this recording, which is around Thanksgiving, we are about on par with the number of transactions that were completed in 2019. And what is notable about that is 2019 in itself was a record year. MarshBerry anticipates that we’ll have over 100 specialty distributor transactions, which will represent around a 5-10% growth rate compared to the number of transactions in 2019.
Now, why you may ask, are there more transactions this year than we’ve historically seen ever? Well, the reason being are there’s many influencers and factors that are causing specialty distributors to want to go to the market. And that’s exactly what this three-part episode series will focus on.
Today, we’re going to talk about the political landscapes and the tax consequences that are potentially tied to them. Now, when we look at the Biden administration, they are proposing capital gains tax rates of approximately 39.6%. If you compare this to what we currently have, it’s in the low twenties for most individuals. What that translates to is if you go through a transaction in today’s environment, you may take up to 25% more in after-tax dollars than if you were to have this capital gains tax rate increase to 39.6% under the Biden administration. Now that in itself is a big motivator and one of the main reasons why we’re seeing special distributors come to the market in 2020.
Join us next week when we look at other market factors that are influencing special distributors and causing them to contemplate partnerships in the marketplace. At MarshBerry, we like to say we help our clients to Learn, Improve, and Realize their value. Thank you and have a great day.
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.
