Buyers in the insurance space are doubling down - for good reason.
In the insurance industry in 2020, there was approximately $18.3B of debt raised which is almost double the amount of debt that was raised in the insurance and financial services industry in 2019. And no, this is not a friendly game of poker where the stakes are high and it’s anyone’s game. Buyers in the space are doubling down for good reason.
While the specific data around sources (and what the debt is to be used for) is not always disclosed, MarshBerry anticipates that a large amount of the debt that was raised in 2020 will be used to fund acquisitions and growth initiatives throughout 2021. Some of this debt has been previously deployed and there are other investments firms are making. However, history tells us that in the year following large increases in lending there has been an increase in merger & acquisition (M&A) transactions - meaning the insurance brokerage industry could see upwards of almost 800 transactions. MarshBerry, and the majority of the buyers in the space, anticipate more sellers exploring a transaction in 2021 given the tax changes and regulation that are likely on the horizon.
The busiest time for lenders was the second quarter of 2020, June in particular, which saw an uptick to $9.8B. Some of this increase was the result of a need to alleviate potential cash flow concerns during the pandemic or the specific deals that were on the horizon - specifically USI Insurance Services (USI) acquisition of Associated Benefits & Risk Consulting. USI, AssuredPartners, Inc., The Ardonagh Group, Alliant Insurance Services, Inc. (Alliant), and Hub International Limited topped the list with the highest amounts of debt raised. Throughout 2020, Alliant, USI, and AssuredPartners, Inc. took on almost 60% of the $18.3B of committed debt. It’s no wonder all three are aggressively pursuing acquisitions already in first quarter this year.
In October 2020 MarshBerry conducted an interview with Paul Thivierge, Director of Commercial Banking at BMO Harris Bank. As a lender to the insurance space for the last 20 years, Thivierage mentioned the resilience of the insurance market caused little changes to the underwriting review. Yes, banks are more cautious with recaps, however, lenders are confident in the stability of the industry.
MarshBerry has discussed previously the benefits of the current debt market - specifically that interest rates are so low that it’s inexpensive to take on debt right now. Who doesn’t like to borrow money with little to no ongoing cost – there's not much of a gamble. MarshBerry has certainly seen an uptick in clients looking to raise capital and/or assist with buy side searches to help deploy additional investment strategies for growth through acquisitions. So, whether you want to get in on the action and double down yourself, or if you are ready to take some chips off the table, brace yourself for an exciting 2021 in the insurance industry.
If you have questions about Today’s ViewPoint or would like to learn more about the availability of debt capital in the insurance brokerage market, please email or call Gerard Vecchio, Managing Director, at 212.972.4886.
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