The P&C insurance distribution market is active. In broad strokes, we estimate there is more than $55B of capital searching for investments. However, there aren’t enough distributors, brokers, and service providers to go around. We’ve seen a widening of the range of market multiples to 12-17X EBITDA, driven by scale, earnings quality, and market differentiation. Although M&A activity is lower, it may be on the rebound as founders have more options than ever before – from minority capital, debt, acquisitions, and ESOPs.
There are more investors than sellers – Per our research into the Property & Casualty world, there are nearly 350 Private Equity investors and 200 strategic acquirers seeking insurance industry investments. However, there are only 500 or so insurance distributors and only a fraction of them come for sale each year. At current market valuations, we estimate there is $55B of capital demand, pursuing less than $40B of P&C distributor supply. A situation that generally should benefit sellers – if it weren’t for the questions about the macro outlook. In practice, we’ve seen A+ players hold value, while others are seeing a softening as buyers adjust their acquisition models to higher rates and risk.
P&C distribution valuations have shifted within a range of 12X-17X EBITDA. The higher end of the range is unchanged at 15-17X EBITDA, while the lower end has drifted down to 10-12.5X (and lower for sub-scale addons). In 2023, the 105 transactions showed a modest 5% rise, recovering from a 29% decline in 2022. For 2024, our clients are expecting more transactions, particularly at the lower end of valuation; driven more by the size of the sellers rather than lower quality of earnings.
Founder options - minority capital, debt, acquisitions and ESOPs. We are seeing more creative solutions as owners explore their capital needs. For example, many insurance distribution firms are multi-generational and a full buyout from a financial firm holds little interest. Instead, a minority investment could provide a smaller, but attractive amount of liquidity without giving up control or resorting to taking on a load of debt. However, there are only a small number of PE firms that are large enough with industry scale and expertise that prioritize minority investing over full buyouts.
Harbor View Advisors is a specialized investment bank that provides both sell-side and buy-side M&A advisory. Our unique approach combines the strategic thinking of a consulting firm with the execution expertise of an investment bank to provide clients with the full spectrum of guidance they need to achieve their goals. Our Insurance Tech & Services practice caters to the marketplace of MGAs, MGUs, specialty distributors, aggregators and the technology and service providers within the P&C ecosystem.
DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.
