Learn. Improve. Realize.

Today's ViewPoint

As the insurance brokerage landscape changes daily, you need relevant insight to today's marketplace as seen through the eyes of MarshBerry's experts. Our commitment is to share our views and offer our expertise to help you make informed decisions. MarshBerry is here for you with as strong of a commitment as ever to help you navigate these complicated times.

Q2 M&A ACTIVITY UPDATE

Posted by Phil Trem on July 8, 2020

The state of the M&A marketplace

If you’ve been keeping up with Today’s Viewpoint, you’ve probably read a number of our posts that mentioned Merger & Acquisition (“M&A”) activity over the last several months. You have likely noticed that activity had somewhat slowed due to COVID-19 and the complications the pandemic has caused in both underlying insurance commission income and deal integration. Now that we are officially on the back side of 2020, what have the last couple of months shown? Have buyers and sellers that pressed “Pause” hit the “Resume” or “Eject” buttons?

MarshBerry tracks industry M&A activity within the insurance distribution marketplace. Through the end of June, there have been 256 individual deals announced. This compares to 343 deals announced through June of 2019. This 25% drop may seem steep, but consider the following:

  • Many deals are retroactively “announced.” In other words, there may be deals released with March close dates in September. So, the year-to-date numbers from 2019 have the benefit of another six months of announcements that could appear in the prior months. Compared to the number of actually announced deals at this time last year (280), activity in 2020 is down less than 10% collectively.
  • The biggest monthly drop, in terms of the number of deals, compared to the prior year was January 2020, in which 60 deals have been announced so far. This is compared to 93 in January 2019 - a 33-deal difference. The 93 deals announced that month was the highest single month in our database, going back to 2005, and it included 18 independent firms coming together as Patriot Growth Partners, LLC, an event that likely skewed the numbers regardless of the market fundamentals in January 2020. Excluding these 18 deals, last January would have shown 75 deals announced, which would illustrate only a 15-deal gap to this January.
  • Announcements in June 2020 were up 50% over May with a total of 45 compared to 30. Typically, seasonality indicates the June deal count is up less than 15% when compared to the prior month.

Not so bad, right?  Combine all the pluses and minuses from the data and it appears to paint a picture of a market that is catching back up from its late spring “Pause.”

But that leaves the big question, what about deal value? The chart illustrates the change in Platform transaction value (as a multiple of EBITDA) within MarshBerry’s proprietary deal database for the Last Twelve Months (“LTM”) ended 1Q20 and 2Q20 as indexed to the full year 2019.

When looking at just “Platform” transactions, deal value has actually increased more in the LTM 2Q20 when compared to 2019 than the increase that was seen in LTM 1Q20. In other words, Platform transaction value, on average, is up in 2Q as compared to 1Q on a rolling twelve-month basis. MarshBerry defines a Platform transaction as one that typically expands geography for a buyer and/or brings a specific niche expertise, and enough size and scale, for a buyer to leverage into future “roll-in” acquisitions.

There is a lot that can happen in the M&A market between now and the end of the year. A presidential election year always brings some level of uncertainty for both buyers and sellers. Often this uncertainty keeps multiples and demand high. But, couple that with a global pandemic that appears to be spiking again domestically, and you’d need a crystal ball to determine exactly how the market will unfold.  

If you have questions about Today’s ViewPoint, or about activity in the M&A marketplace, please email or call Phil Trem, President – Financial Advisory, at 440.392.6547.

Subscribe to MarshBerry's Today's ViewPoint blog for the latest news and updates and follow us on social media.


EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization

Base Purchase Price:  The amount of proceeds paid at closing, including any escrow amounts for indemnification items, (i.e., Paid at Close) plus amounts that the buyer may initially hold back, but which are paid as long as the sellers performance does not materially decline, or which may be paid at closing but are subject to a potential adjustment (i.e., Live Out).

Realistic Purchase Price:  The amount of proceeds realistically anticipated to be achieved in the future based on a number of factors including seller historical and expected performance, buyer and seller realistic discussion of earn out metrics, etc.

Maximum Purchase Price:  The additional earn out above the realistic level, that if achieved, would generate the maximum possible earn out payment. 

Investment banking services offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440.354.3230)

Topics: Financial Advisory, insurance, agents, brokers, insurance distribution, value, mergers, acquistion, buy, sell

Leave Comment