Insurance Brokerages: Is it the Right Time to Merge or Acquire?
With the advance of technology causing disruption to the insurance broker market, brokers are finding that investment is needed to stay relevant and profitable. Many smaller insurance brokers are concluding that acquisition and consolidation by larger buyers is a healthy move for their companies. Statistics show that as recovery from economic downturn began, so the number of mergers and acquisitions within the broker market has increased, with an approximate increase of 33% in 2014 and 26% in 2015.[i] Furthermore, Investment News Magazine suggests that 2017 is to be “the year” for consolidation and mergers of brokers. [ii]
What are the benefits of mergers and acquisitions?
Acquiring businesses is a massive opportunity for buyers, with huge financial pay-offs if the acquisitions are well chosen. Consolidating a number of smaller companies can allow each business to specialise in their own area of expertise, creating a parent company that can offer a wide variety of very high-quality services. In addition, each company that is acquired is likely to come with an experienced team that is already very invested in the business with a depth of knowledge and relevant skill set. There may also be the benefit of a pool of clients that are already loyal to the business, who can then be introduced to other departments and services within the company. Wise acquisitions can be extremely profitable with plenty of opportunity; though choosing the right businesses to pursue is a skilled task.
Consolidation can marry a business with other complimentary companies, attracting new clients. It can allow a business to focus on its own strengths, prioritising and specialising – in the knowledge that other important areas will be met by other departments. Because of this, the business need not fear that they will put off potential clients by lacking in some areas. At the same time, they may enjoy additional business from other departments, pointing clients in the direction of their own specialism. Having a parent company can also give additional management expertise and a new association with a larger brand and reputation may bring in larger corporate clients.
There is also potential for 2017 to be a year when a business owner might expect to achieve a decent price for the sale of a healthy business, due to high demand creating a sellers’ market, according to the International Risk Management Institute. [iii] This means that for a seller who is retiring, there could potentially be a large windfall to enjoy into retirement.
Being acquired by a larger business may be a worrying prospect at the time of a merger, but in the long run it is actually likely to offer far more stability, particularly for companies that were starting to struggle with the competition that has come from emerging technology, or a business owner nearing retirement.
Clients can expect to enjoy an even more professional service after an acquisition. There is likely to be a wider range of experience across the departments, meaning that the broker can give quality advice and services to meet all insurance needs, rather than just one or two. This may also allow better efficiency and possibly better financial rates.
Recent UK Acquisitions
· Towergate’s UK based broker investment vehicle, Nevada investments, has recently acquired a huge medical insurance broker, Chase Templeton from Palatine Private Equity. An exciting opportunity for Towergate, Chase Templeton has itself made 70 acquisitions over the past few years and has increased its annual income by around 60 million pounds. An excellent opportunity for Chase Templeton too, chief executive Warren Dickinson points out that the situation and expertise of Nevada will help to drive Chase Templeton forward.[iv]
· Arthur J Gallagher has, at the end of last year, purchased London based wealth management services specialists, Argentis. With a specialism in employee benefits, Argentis perfectly complements Gallagher, which is building up premium services in this area. [v]
· Earlier this year, British broking company Willis Towers Watson acquired French aviation insurance specialists, OAAGC. This very niche area of insurance brokerage adds a high-quality addition to the already well-established aviation team of Willis Towers Watson. For OAAGC, clients can now enjoy the wider range of services offered by the new parent company. [vi]
Pitfalls and Considerations
Acquiring new businesses (or selling a business to be merged) is not a decision to take lightly. For the seller, they will want to ensure a fair price and think about their own future at the firm, as well as the future of their employees.
A buyer will have multiple issues to consider. Bad investments can lead to profit loss and debt. There are far more considerations than can be listed here, but the IRMI recommends assessing risk by looking at a company’s profit, loss and growth as compared to similar businesses exposed to the same market forces. [vii]
Acquisitions can take up a lot of time and energy and require considerable expertise. It can be a strategic move to employ specialists to work in an acquisitions department. A smaller company may instead choose to employ freelance specialists or an outside company to oversee acquisitions. With the right advice and expert oversight, acquisitions and mergers can be a healthy and profitable step forward for all involved.
General Insurance and Financial Services recruitment specialist, Aston Charles, is well-versed in guiding brokers through the process of being acquired and acquiring firms. With a number of successful acquisitions to our name in the regional and London markets, we are currently representing several broker Principals who are considering their succession planning options, and a number of brokers (from independent provincials to global powerhouses) who are seeking to make complimentary acquisitions. For more info, please get in touch on 0345 193 2460.
[i]Balcombe, Jeff. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. 2016. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. [ONLINE] Available at: https://www.irmi.com/articles/expert-commentary/insurance-agent-broker-valuation. [Accessed 23 June 2017].
[ii] Bruce Kelly. 2017. 2017 to be year of independent broker-dealer mergers. [ONLINE] Available at: http://www.investmentnews.com/article/20170122/FREE/170119915/2017-to-be-year-of-independent-broker-dealer-mergers. [Accessed 23 June 2017].
[iii]Balcombe, Jeff. 2016. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. [ONLINE] Available at: https://www.irmi.com/articles/expert-commentary/insurance-agent-broker-valuation. [Accessed 23 June 2017].
[iv] Ben Dyson. 2017. Towergate owners in new broker acquisition | Latest News | Insurance Times. [ONLINE] Available at: http://www.insurancetimes.co.uk/towergate-owners-in-new-broker-acquisition/1421552.article. [Accessed 23 June 2017].
[v] Williams, Henry. 2016. Startups.co.uk: Starting a business advice and business ideas. Financial management firm Argentis acquired by Arthur J Gallagher & Co. | Growing Business. [ONLINE] Available at: http://startups.co.uk/argentis-acquired-by-arthur-j-gallagher-co/. [Accessed 23 June 2017].
[vi] Louie Bacani. 2017. Willis Towers Watson completes broker acquisition | Insurance Business. [ONLINE] Available at: http://www.insurancebusinessmag.com/uk/news/breaking-news/willis-towers-watson-completes-broker-acquisition-61873.aspx. [Accessed 23 June 2017].
[vii] Balcombe, Jeff. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. 2016. Recent Trends in the Valuation of Agents and Brokers | IRMI.com. [ONLINE] Available at: https://www.irmi.com/articles/expert-commentary/insurance-agent-broker-valuation. [Accessed 23 June 2017].