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U.S. & EURO MARKET FORCES DRIVING M&A

Posted by Michel Schaft on August 20, 2020

Brokers are looking beyond the border with an eye on growth opportunities in Europe 

In 2019, the U.S. insurance market wrapped up another dynamic year with record merger and acquisition (M&A) activity, driven by progressive firms expanding operations and continued private equity investment. Across the pond in Europe, it was also a seller’s market with buyer demand, too—specifically for brokers wanting to create an international footprint.

Then came COVID-19 with an unknown impact on the economy and the insurance market. Although market activity slowed earlier this year, we have witnessed a resurgence of demand given the strong underpinnings of the insurance distribution business. Buyers remain eager to move forward and seize market opportunities.

Some U.S. brokers are also looking beyond the border with an eye on growth opportunities in Europe where the market largely remains fragmented given that most countries have not experienced the private equity fueled buyer demand. While the United Kingdom ("UK") and France have comparably mature insurance markets, in terms of the buy/sell activity and increased consolidation, most other European countries are populated with smaller, family-owned, independent brokers and agents that are tied exclusively to a specific carrier. There is exponential opportunity in Europe for regional brokers and U.S. investors to increase their market share by acquiring abroad.

There’s an evident consolidation riptide that is moving across the globe and has already impacted the UK insurance market. There, roughly 4,000 brokers and agents represent about €300 billion in premium. However, in the untapped Netherlands market for example, there are about 6,500 brokers and agents with €80 billion in premium. And in Germany, there are 45,000 brokers and agents with premium roughly equal to the UK market.

Countries like Germany and France, apart from numerous independent brokers, also have a large number of agents that are “tied” to a specific insurance carrier, otherwise known in the U.S. as captive agents. Case in point: of the 45,000 brokers and agents in Germany, 20,000 of them are tied. This presents a significant opportunity for independent brokers to acquire these agencies and expand their portfolio of carriers, which would provide clients more choices.

Deal pricing in Europe has largely mirrored that in the U.S. The attractive pricing, and high-performance payouts, is pulling brokers once committed to internal perpetuation to the deal table. Another draw to considering a transaction is a growing awareness that significant investments in talent, analytics, and technology are crucial in order to survive in the modern marketplace. Many are making the decision to transact to secure a premium valuation and align with a partner with the resources that can help grow the business post-closing.

While high-quality platforms command high valuations, the overheated marketplace can create somewhat of a mirage effect. How will the potential acquirer add value to your overall strategy? What will you accomplish as a result of the transaction? In an exciting M&A environment with unprecedented valuations, there’s a tendency to sell for monetary reasons, to transfer risk or to follow the herd and sell because everyone else seems to be selling. If you are looking to potentially sell, the key is to stay focused on your goals, understand your deficiencies, focus on cultural fit and partner with a buyer that provides the opportunity to propel your business and legacy to new heights.

If you have questions about Today’s ViewPoint, or about activity in the international M&A marketplace, please email or call Michel Schaft, Managing Director – MarshBerry International, at +31 6 53 66 75 21.

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Topics: insurance, agents, brokers, revenue, international

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