The number of insurance agency mergers and acquisitions declined to 46 in the second quarter from the 76 transactions reported in Q1, according to “Agent-Broker Mergers & Acquisitions June 2013,” from Optis Partners, an agent-broker M&A advisory firm. In the first half of this year, there were 122 reported acquisitions in the United States and Canada, compared to 133 deals last year.
The biggest buyers were privately owned brokers, who made 45 acquisitions compared to 40 for the same period last year; private equity-backed brokers made 40 acquisitions, which was unchanged from last year. Deals executed by publicly owned brokers declined to 18 from 30 for the same period last year, and banks made 14 acquisitions, up from 10. Hub International accounted for 14 deals so far this year, followed Arthur J. Gallagher, with nine deals, and Digital Insurance, with seven.
“This year’s numbers are inflated somewhat because many of the deals reported in January and some in February probably closed in 2012,” said Timothy Cunningham, managing director of Optis, an investment banking and financial consulting firm specializing in the insurance industry. “We don’t expect to see a comparable level of activity for the remainder of 2013 as we saw in 2012, but we also strongly believe that over the long-term, M&A activity will continue to grow. There are plenty of buyers with readily available funds in the marketplace today. Buyers need the growth acquisitions provide, and the demand will continue to keep valuations attractive to sellers.”
Optis said that M&A activity was strong in January and February, but slowed substantially thereafter. “Much of the January and some of the February deal count was likely late reporting of transactions actually closed in 2012,” the report said, and transactions since March have fallen below the numbers reported for the same period in the past two years.
An unusually high number of deals were done in 2012 to avoid recent tax increases, which has reduced prospective inventory and caused sellers to delay transactions until they could recoup at least some of the tax increases, Optis said.
Capital gains taxes increased to 20 percent from 15 percent; and a new 3.8 percent Patient Protection and Affordable Care Act surtax was imposed on investment gains for certain high-income individuals. “Combined, the tax on many capital gains transactions increased from 15 percent to almost 24 percent, or almost 60 percent overnight,” Optis said.
There were 46 sales of P&C agencies; 30 deals for those selling both P&C and employee benefits, 36 sales of employee benefits-only agencies and 10 other transactions, primarily MGAs, Optis said.
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