During 2022’s first quarter, mergers and acquisitions slowed for property & casualty insurance agencies in North America as M&A activity declined 14%, according to OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.
The data, which also includes deals involving benefits brokers, shows that just 149 deals were announced in the first three months of 2022. While the first quarter typically sees fewer deals, OPTIS noted Q1 2022 saw the lowest deal volume of any first quarter since 2016 and was 7% below the five-year average.
As previously reported, 2021 was the fourth busiest year in the past decade for insurance deals.
“The decline is not surprising because the fourth quarter of 2021 was frenetic, with 384 deals. Deal-makers usually take a short-lived breather after busy year-end activities, and seller inventory is shrinking,” Steve Germundson, a partner at OPTIS Partners, said in a release.
Additionally, record valuations and concerns of a pending tax increase moved many agency owners to consider selling in recent years, according to Timothy J. Cunningham, OPTIS manager partner, who said in a statement that “while valuations remain very high, the concern over tax increases has abated.”
Although the year started slow, Germundson reported M&A activity should accelerate moving into the second quarter.
“Our conversations with a number of buyers confirm that as many are reporting double-digit numbers of letters of intent in hand going into the Q2,” he said in a release.
Accounting for 70% of all announced transactions during the first quarter of 2022, private equity-backed and “hybrid” investors continue to be the leading force in insurance M&A activity, according to OPTIS, which noted that transactions among private parties accounted for 21% of the quarter’s M&A activity. For the 12-month period ending March 2022, private equity was involved with nearly 80% of all transactions.
