A client asked me, “Did I wait too long to sell?” Since the number of deals has generally been in decline since mid-2022, some agency owners may wonder if they missed the boat. They haven’t.
In the second quarter of 2022, there were 1,206 deals announced for the prior 12-month period. While activity has since slowed to the current pace of about 760-800 deals per year, we have reasons to believe that the deal environment is healthy.
Why the market will remain robust
Demand is high, with many buyers. The current pace is higher than the 600-650 deals per year prior to the bubble, which began December 2020. Since the start of 2022, we have identified 203 unique buyers—82 of which have done more than one acquisition, and 46 of which have done more than five deals.
In this same period, 48 distinct private equity-backed firms have made at least one deal, and 29 have done more than five deals. There also has been a rise in the number of acquisitive privately owned firms. In this same period, there have been 120 privately owned agencies that have acquired other agencies. Seven publicly traded companies have made acquisitions since the beginning of 2022.
The supply of sellers still is large. Many people would say supply is shrinking, and we have tracked over 9,000 firms that have sold since 2008. Yet, statistics indicate that there around 36,000 independent agencies in business currently.
These seemingly opposing statistics point to an industry that has an ability to regenerate itself to a certain degree. During this period, many firms were started by producers who sold to large brokers, and they wanted to get back to the entrepreneurial environment that they once enjoyed. So, while we expect continued consolidation and the 36,000 total agencies to shrink some, we think that there will be noticeable offset to the shrinking from startups. The net result is ample supply for the foreseeable future.
It’s true that a lot of good firms have been sold. Nevertheless, a healthy supply of quality firms remains—some that arose as new firms in the last decade, and others that have managed to perpetuate ownership to the next generation successfully. They may not be as large, or have the same name recognition, but many good firms are out there.
What about the large firms? Since the start of 2022, there have been 22 brokers in excess of $25 million of revenue that have sold—including $1 billion-plus firms NFP to AON, and McGriff Insurance Services to Marsh McLennan Agency. Larger firms are going to have to complete larger deals to move the growth needle. Looking at Business Insurance top 100 firms over the last few years gives insight into the quantity of large firms. In 2020, the 100th largest firm was just over $23 million in revenue, and in the most recent publication the 100th largest firm was just over $31 million. Many of these top 100—regardless of ownership—are acquisition targets, and we would not be surprised to see at least five $25 million-plus revenue deals announced each year.
Private equity continues to dominate, bringing more capital into the space. Since 2020, the private equity-backed firms have consistently done seven-out-of-10 deals. Yet among them, there are some interesting developments, such as the consolidation that has taken place since 2020. Each year since then there have been 30-40 private equity-backed buyers, but in total during this time there have been a total of 63 distinct buyers. Some have been purchased and quite a few never materialized into anything meaningful. Looking back a little farther in time, there were an additional 46 private equity firms that have done at least one deal since 2015, but nothing in the last three years. Again, many firms have sold and some continue to languish on the vine.
There are 20 private equity-backed firms that are consistently active acquirers—typically completing more than five deals per year. So, while consolidation has taken place, there is more capital looking to enter the industry: among those 20, six firms did their first deal in 2024, and another four firms entered the market in 2023. Investors are interested in the insurance distribution space and late entrants continue to emerge.
Regarding the private equity side of our industry, we have heard from several firms that have plans to recapitalize by the end of 2025, and at least two others with plans to go public, like the Texas-based Woodlands Financial Group that held a successful IPO in mid-2024.
Valuations remain high. Based on anecdotal evidence, what we see in our own database, and what has been reported in the press, valuations remain persistently high. While they may have declined somewhat for the less-attractive firms, the better firms are getting top-dollar. We think this is largely a demand-driven result since valuations remained lofty even when interest rates began to rise, which is counterintuitive.
Is it too late to sell?
Absolutely not. Generally, we do not think values will rise above current levels, but we also do not see them falling off a cliff.
There is a healthy demand among buyers, and the limiting factor is likely to be the supply of sellers—especially top-quality sellers. Those who have managed true organic growth and maintain relative youth in the organization will command top-dollar.
This article originally appeared in the January 2025 issue of PIA Magazine.
Steven Germundson
A long-time partner of the consulting firm OPTIS Partners (optisins.com), a financial consulting firm specializing in the insurance industry, Germundson is a former independent agency owner. He co-founded NSIA Inc., a Minneapolis-based insurance agency. Later, he joined the high-growth startup insurance broker, Prime Risk Partners. Reach him at germundson@optisins.com.
