US Insurance Broker

Midsize brokers make hot platforms for PEs to consolidate small sellers 

Market overview

Private equity firms could continue to view insurance brokerages as a resilient market for M&A roll-ups, especially as the COVID-19 outbreak has prompted small struggling brokers to take chips off the table.

“The inbound call volume from people wanting to sell has increased significantly,” Inszone Insurance Services CEO and principal owner Norm Hudson said. “People are scared of what's to come. They’re trying to see what they could do to monetize their asset now.”

While the pandemic has disrupted many M&A activities in the financial services industry, PE interest in the insurance brokerage space has seen steady action. Flexpoint Ford invested in TigerRisk Partners on 23 April. HGGC acquired PCF Insurance from BHMS Investments on 31 March. Genstar Capital injected USD 100m capital to establish Obsidian Insurance Holdings on 27 March. Inszone is in late-stage talks for a minority stake sale to a PE firm, this news service reported.

“You may see some contraction, but insurance is usually the last thing businesses turn off, and the first thing they turn back on. It is viewed as essential,” said John Block, a partner at HGGC.

The popular roll-up strategy is to acquire a midsize insurance broker as a platform to consolidate smaller players and boost valuation. Notable PE-backed broker platforms, including Hub International, Alliant Insurance Services, AssuredPartners, NFP and The Hilb Group, are buying smaller brokers like wildfire and trading from one PE firm to another every couple of years.

The acquisition arbitrage is obvious. Brokers with less than USD 10m in adjusted EBITDA are usually sold below 10x EBITDA, while broker platforms with more than USD 20m in adjusted EBITDA can fetch as high as 15x. Platform targets with M&A expertise and good acquisition pipelines are more attractive. In general, midsize targets with EBITDA margin of more than 20% are above average.

As these PE-backed broker platforms become too large for another PE firm to swallow, it makes more sense for family offices and pension funds to step in and make long-term investments. That’s why PE firms are keeping their eyes on other closely held, midsize broker platforms available on the market, such as Inszone.

Seven publicly traded insurance brokers, Marsh & Mclennan [NYSE:MMC], Aon PLC [NYSE:AON], Willis Tower Watson PLC [NASDAQ:WLTW], Arthur J Gallagher [NYSE:AJG], Brown & Brown [NYSE:BRO], Baldwin Risk Partners [NASDAQ:BRP] and McGriff Insurance Services, part of BB&T [NYSE:TFC], are also logical buyers of broker platforms. On 8 March, Aon announced plans to buy WLTW in an all-stock deal, valuing WLTW equity at USD 29.8bn.

The recent market turbulence has been threatening public firms’ market cap, which is likely to make strategic bidders less aggressive in pursuing acquisitions, a sector advisor said. Most small-to-mid size deals are constructed with cash, and so buyers with strong capability to line up credit facilities are most competitive, the sector advisor added.

Inevitably, deal valuations are negatively affected as brokers’ revenue and EBITDA are expected to decline in Q2, Inszone’s Hudson said, adding that some insurance broker sellers are reporting a 20%-30% loss of business due to the pandemic. 

Below is a list of closely held, midsize insurance brokers:

Insurance BrokerOwnership
Leavitt Groupfamily owned
Holmes Murphy & Associatesemployee owned
Cottingham & Butlerfamily owned
Cross Insurancefamily owned
The IMA Financial Groupemployee owned
Hylant Groupfamily owned
PayneWest Insuranceemployee owned
Heffernan Groupemployee owned
Insuricapartner owned
Oswald Companiesemployee owned
Lawley Insurancefamily owned
Horton Groupfamily owned
Marshall & Sterling Enterprisesemployee owned
TrueNorth Companiespartner owned
M3 Insurance Solutionsemployee owned
Houchens Insurance Groupemployee owned
Scott Insuranceemployee owned
Parker, Smith & Feekowned by 34 shareholders who are employees
Graham Companyemployee owned
Starkweather & Shepley Insurance Brokerageemployee owned
LMC Insurance & Risk Managementowned by 50 active shareholders
Bowen, Miclette & Brittpartner owned
Rose & Kiernanemployee owned
The Mahoney Grouppartner owned
AHT Insuranceemployee owned
Sunstar Insurance Groupowned by key employees and a group of outside private investors
Ansay & Associatesfamily owned
Robertson Ryan & Associatespartner owned
Crane Agencyowned by family members and key partners
Sterling Seacrest Partnerspartner owned
James G. Parker Insurance Associatesfamily owned
Christensen Group Insuranceemployee owned
Kapnick Insurance Groupowned by family members, employees and partners
R&R Insurance Servicesfamily owned
Cobbs Allenemployee owned
Haylor, Freyer & Coonemployee owned
Tricor Insurancefamily owned
Murray Securusemployee owned
Insgroupowned by family members and key partners
The Buckner Companyfamily owned

Below is a list of PE-backed insurance brokers:

Insurance BrokersCurrent BackerInvestment TimeMonths Held
PCF InsuranceHGGC4/20201
World Insurance AssociatesCharlesbank Capital Partners3/20202
The Hilb GroupThe Carlyle Group10/20196
Relation InsuranceAquiline Capital Partners2/201914
AcrisureBlackstone's GSO Capital Partners and Tactical Opportunities and Partners Group and Harvest Partners SCF12/201816
Propel InsuranceFlexpoint Ford invested5/201823
Edgewood Partners Insurance CenterOak Hill Capital Partners7/201733
OneDigital Health and BenefitsNew Mountain Capital5/201735
USI Insurance ServicesKKR,Caisse de dépôt et placement du Québec (CDPQ)3/201737
Alera GroupGenstar Capital12/201640
Risk Strategies CompanyKelso & Company10/201554
Alliant Insurance ServicesStone Point Capital1/201563
Public Sector Pension Investment Board invested1/201915
NFPMadison Dearborn Partners4/201384
Hub InternationalHellman & Friedman8/201380
Altas Partners acquired a minority stake10/201818
BroadStreet PartnersCentury Equity Partners

Companies to follow:

Inszone Insurance Services (4/6/2020)
Inszone Insurance Services is in late-stage talks for a minority stake sale to a PE firm and plans to acquire more than 20 family-owned retail insurance brokers a year as the COVID-19 outbreak pushes more firms to sell, said Norm Hudson, CEO and principal owner. Rancho Cordova, California-based Inszone is a retail broker focusing on personal and commercial line insurance. Inszone’s revenue is in the range of USD 15m to USD 20m, and the firm plans to generate USD 25m to USD 30m by year-end, Hudson said. Inszone currently has more than 20 active discussions and more than 50 targets in the pipeline, he said. The sweet spot for target size is no more than USD 1m in revenue, Hudson said. These small firms are typically sold for 6x to 8.5x EBITDA, he noted. Inszone has been approached by multiple strategic buyers and PE firms, Hudson said, adding that Inszone chose to bring in a PE investor to get stable capital resources. Hudson, who is 45 years old, said he could consider largely divesting his stake position in the future, but it’s too early to speculate.

PCF Insurance (4/3/2020)
PCF Insurance, majority acquired by HGGC early April, will have access to sufficient debt financing for M&A, said John Block, a partner with the private equity firm. Block said HGGC plans to roll up 10 to 20 retail insurance brokers under the PCF platform a year with a goal to double the size of the firm in 2020. He said Woodland Hill, California-based PCF has multiple deals under letters of intent. PCF plans to acquire commercial, P&C and personal line agencies with as little as USD 200,000 in revenue and up to USD 10m, Block said. PCF has 400 employees and around 40,000 customers. Block said HGGC has taken into consideration of the impact of COVID-19 and a broader recession and believes the insurance service industry tends to be a resilient, stable and steady market. While the COVID-19 has created some headwinds for the insurance service market, it also creates strong M&A opportunities as some business owners may want to take out risk and join in a well-capitalized, larger platform, Block said.

Simplicity Group (3/10/2020)
Simplicity Group, a Summit, New Jersey-headquartered insurance distributor, has received inbound interest from suitors but is not actively exploring a sale, said CEO Bruce Donaldson. “We are not engaged in a sale process,” said Donaldson. “But there has been no shortage of interest in Simplicity over the last two years. In this regard, we talk to people all the time.” Three sources familiar with the situation said Simplicity has chosen an adviser to field the inbound approaches but Donaldson denied that any firm has been mandated. Simplicity has had preliminary talks with suitors, the three sources said. Simplicity’s topline revenue is in the USD 100m to USD 125m range, the first two sources said. The company is backed by New York-based private equity firm Aquiline Capital Partners.

NFP (3/3/2020)
NFP, a Madison Dearborn Partners-backed insurance broker and benefits consultant, expects to close approximately 40 deals in the US and Canada this year, said Chairman and CEO Doug Hammond. The “deep focus” of M&A activity in both countries will be property/casualty insurance, which is currently the second-largest business vertical following benefits consulting, the executive said. New York City-based NFP seeks to add EBITDA of USD 45m to USD 55m through acquisitions in 2020, Hammond said. NFP generated revenue of USD 1.5bn in 2019, a 17% increase over USD 1.2bn in the previous year, and currently has an EBITDA run-rate of USD 405m to USD 410m with EBITDA margins in the 30% range, he added. Employee headcount rose to 5,600 in 2019, up from 4,600 in 2018. Hammond said that roughly 20% of transactions this year are likely to occur in Canada, where NFP generated USD 140m of its 2019 revenue, up from USD 60m in 2018. In February, NFP said it was rebranding its individual agencies in Canada under the NFP label as part of an effort to form a unified North American brand.

OneDigital Health and Benefits (2/14/2020)
OneDigital Health and Benefits, a leading broker of benefit solutions for employers, has engaged JPMorgan to explore a sale, said four sources familiar with the matter. The Atlanta-based portfolio company of New Mountain Capital has not yet launched a sale process, the sources said, but is expected to target strategic and financial sponsors as potential suitors. OneDigital generates EBITDA of around USD 160m, three of the sources said. Seller expectations for the asset are in the mid-teens multiple of this figure, these sources said. The sources said OneDigital’s EBITDA is adjusted for the new ASC 606 rule, an accounting rule for revenue recognition for private companies in effect in 2019, including healthcare benefits brokers. Excluding 606 adjustments, OneDigital's EBITDA would be significantly lower, they said.

World Insurance Associates (12/11/2019)
World Insurance Associates (WIA), a Tinton Falls, New Jersey-based insurance group, was marketed off around USD 28m in 2019 projected EBITDA, said two sources familiar with the matter. WIA was likely commanded a multiple at low- to mid-double digits, one of the sources said. Debt providers have been willing to provide over 6x leverage for insurance brokerage deals, and the space remains fragmented and attractive to PE buyers, the source added. WIA has become somewhat of a serial acquirer, scooping up at least a dozen firms in 2019.

Integrity Marketing Group (11/4/2019)
Integrity Marketing Group, a private equity-backed insurance distributor, plans to acquire 20 US-based insurance marketing organizations next year, said Bryan Adams, CEO and co-founder. This year, the Dallas-based company will have helped insurance carriers place over USD 2.1bn in annual new premiums, Adams said. It plans to quadruple or quintuple that number in the next five years. It is “growing significantly faster” through add-on acquisitions, he said. It has acquired 27 firms in the past two years, including five in October, said Steven Prince, vice president of marketing.

Burnham (10/25/2019)
Burnham, the parent of Burnham Benefits and Burnham Risk, wants to acquire midsize property and casualty insurance and employee benefits brokers in California, said Sara Owens, COO and Partner at Burnham Risk. Burnham brought in Owens from Hub International in mid-2018 to capture acquisition opportunities in the P&C market and expand its sales network. Burnham Risk, which specializes in P&C, risk management and personal lines, was formed in the end of 2018 and acquired Los Angeles-based SeaTech in September. It was Burnham’s first ever acquisition, she said. Burnham generates around USD 45m in revenue, said Owens, who is also vice president of corporate development at Burnham Benefits.

High Street Insurance Partners (10/21/2019)
High Street Insurance Partners expects to close three more acquisitions this year and up to 12 in 2020, said CEO Scott Wick. Traverse City, Michigan-based High Street was established in June 2018 as a partnership between Wick, COO Randy Koch and the Detroit-based private equity firm Huron Capital Partners, and has acquired six agencies to date, mainly in Michigan. Both Wick and Koch previously worked for HUB International. Brian Rassel, a VP with Huron Capital, said acquired agencies have been as small as USD 500,000 in revenue, and noted the company has considered targets with revenue of USD 30m and above. He said agencies with superior organic growth, high renewal rates and a focus on specialty markets are the most attractive regardless of size. Multiples have been “ticking up” in the fragmented independent insurance agency space, and are generally in the 7.5x to 8.5x EBITDA range, Wick said. The agency’s organic growth revenue run rate is 7.7% annually, which he said is about twice the rate of its middle-market insurance broker peers.

Edgewood Partners Insurance Center (10/3/2019)
Edgewood Partners Insurance Center (EPIC), an Oak Hill Capital Partners-backed insurance brokerage and consulting firm, is conducting due diligence on several US-based targets and eyes USD 1bn in revenue by 2022, said John Hahn, co-founder and CEO. As it gets closer to USD 1bn in revenue, it will “probably look for longer term capital” for next recapitalization, Hahn said, adding that new investors can be private equity firms, pension funds, family offices and sovereign wealth funds. It has used Bank of America Merrill Lynch to find private equity sponsors and “recapitalize the company every couple of years,” he said. EPIC has an annual run-rate revenue of more than USD 600m, and plans to have around USD 750m by year-end. More than 80% of its future revenue growth will come from M&A, Hahn said. Ideal targets are wholesale brokers, managing general agents and other brokerages with expertise in distributing insurance products and services in construction, real estate, energy, healthcare, manufacturing, sports and entertainment, and hospitality. It is in talks with targets that have as low as “a couple of million” dollars in revenue, Hahn said. It is also looking at a target with more than USD 100m in revenue but won’t acquire “too many” firms at this size, he said.

Clements Worldwide (9/27/2019)
Clements Worldwide is in talks with several insurance broker targets in Germany, the UK and the US, and plans to double its annual total premiums to USD 200m in five years, said President Tarun Chopra. The Washington, DC-based international insurance brokerage offers auto, property, health, life, disability and specialty insurance products and services for individuals and organizations who work and travel across borders.The sweet spot for target size is no more than USD 10m in annual revenue and two to 20 employees, Chopra said. It plans to acquire two to three firms with USD 1m to USD 3m in revenue in a given year or acquire one firm with around USD 10m every 12 to 18 months, he said. It only wants profitable targets and typically pays 8x to 10x EBITDA for a deal, Chopra noted. While family-owned Clements has received inbound inquiries from private equity and insurance-related suitors “almost every week,” it has not been inclined to sell the business, said Chopra, who doesn’t own a stake. Chopra said it may consider an initial public offering when it reaches USD 500m in annual premiums.

Specialty Program Group (8/26/2019)
Specialty Program Group (SPG) is in talks with eight US-based underwriting, wholesale and managing general agent (MGA) insurance targets, and it wants to double premiums to USD 1bn within three years, said Chris Treanor, CEO and president. The Summit, New Jersey-based operator of specialty insurance brokerages and underwriting facilities was established in October 2015 by parent HUB International to focus on acquiring MGAs and specialty distribution businesses as a complement to Hub’s retail platform, according to Treanor. The sweet spot for size is USD 5m to USD 15m in annual revenue, Treanor said, adding that attractive targets should have an annual revenue growth rate of more than 5% and a profit margin north of 30%. It typically uses a combination of cash and equity of parent Hub to finance a deal, he noted. SPG, which is profitable, has over USD 500m in annual total premiums. The firm, with more than 200 employees, has more than 15 offices across the US. SPG is looking to use M&A or local licensing to expand into Canada, where Hub has a strong footprint, he said, noting that it is not currently in talks with acquisition targets there. Around 20% of Hub is owned by employees, said Treanor, who also owns a stake.

Relation Insurance (5/20/2019)
Relation Insurance Services, a private equity-owned insurance brokerage recently bought by Aquiline Capital Partners, plans to triple its revenue in three to five years by accelerating its acquisition strategy, said Tim Hall, executive vice president and head of M&A. The Walnut Creek, California-based firm was established as Ascension Insurance in 2007 by Parthenon Capital and Century Equity Partners and sold to Aquiline on April 15. Relation rebranded in 2018. The firm had around USD 100m in revenue in 2018. Relation notably plans to complete a transformative deal in the next 12 to 18 months, CEO Joe Tatum said in the same interview. It is looking at targets with between USD 40m and 100m in annual revenue and is in talks with firms in this range, Tatum said, declining to elaborate. An acquisition of this size would help it expand into new geographies or build new product lines, said Hall. Relation aims to complete eight deals by the end of 2019 and achieve one to two deals per month from 2020, Hall said.

AssuredPartners (2/21/2019)
AssuredPartners exclusively spoke to private equity firms before reaching a deal to sell to its old owner GTCR, the insurance brokerage’s CEO Jim Henderson said. CFO Dean Curtis added that AssuredPartners attracted interest from large financial sponsors who are “in and around the insurance space.” In February 2019, Apax Partners announced plans to sell the Lake Mary, Florida-based company to an investor group led by Chicago-based GTCR, which previously owned AssuredPartners from its inception in 2011 until its sale in 2015 to Apax. Bloomberg News has reported the deal valued the company at USD 5.1bn. Apax will remain an investor in AssuredPartners. The formal process run by BofA Merrill Lynch was about two months in length, Cohen said. AssuredPartners is the 12th-largest US insurance brokerage, according to trade publication Business Insurance, with more than USD 1bn in brokerage revenue. About 46% of its business is retail property/casualty brokerage, about 20% is employee benefits, and another 20% is derived from services, according to BI.

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