2013 M&A Trend Ends Strong

Well, we made it. Despite a lackluster start to 2013, a strong fourth-quarter finish drove the deal count to a respectable 213. 

While still the third-lowest total since 2005, it could have been much worse. And even more, there are indications of a strong 2014. In a year where the first six months produced only two more deals than in December 2012 alone, the deal machine cranked out a total of 60 deals in the last two months of 2013 (25 in November and 35 in December). The industry finished the year with incredible momentum.

There were numerous transactions completed in the first few days of 2014, which likely means either buyers had too much volume causing overflow or the sellers chose to push tax consequences off another year. No matter what, we are off to a strong start in 2014 and are poised to eclipse 14 January deals, which kicked off last year.

AssuredPartners, 2012’s second-most active buyer in the U.S., was the most active domestic buyer in 2013, completing 20 transactions. It added six operations in the third quarter and finished with eight more in the fourth quarter. The 20 firms expanded the footprint of AssuredPartners by adding 10 new markets, bringing on more than 400 employees and increasing total revenues by more than $60 million in commissions and fees.

Hub International, 2012’s third most active buyer, slipped into second place last year with 15 domestic transactions. It was extremely active internationally as well, with a total of 10 Canadian-based deals. Hub is currently Canada’s largest brokerage. Hub’s year was highlighted by a recapitalization when it took on new private equity partner Hellman & Friedman.

The 2012 top domestic acquirer, Arthur J. Gallagher, finished third last year with a total of 14 deals. While its year did not match its total deal count from 2012 (36), it made a number of very large transactions, including acquiring New Jersey’s Bollinger with estimated revenues of $100 million. It also acquired the U.K.’s Giles Group of Companies (£90 million in annual revenues).

Rounding out the top five most active acquirers was non-standard auto specialist Confie Seguros (14) and employee benefit specialist Digital Insurance (9). There were a total of 110 acquirers last year compared to 141 in 2012. The top 10 acquirers accounted for 45% of the total deal flow.

The mix of sellers was nearly identical to 2012: 24% of sellers were exclusively employee benefit firms in 2013, compared to 25% the year before. There was a slight increase in firms that provide both employee benefits and property-casualty services. A third (34%) of all targets were multiline, compared to 29% in 2012. A total of 16% of all deals involved sellers in the wholesale market, compared to 11% in 2012. This may be an indication of an upward trend of consolidation activity in the wholesale marketplace.

With momentum carrying into 2014, we expect a strong market to continue with quality sellers commanding market premiums in a market still oversaturated with buyers and excess capital that needs to be deployed.