Everyone wanted to party in 2011, and this party was no slumber. After years of focusing on internal operations in a challenging economic environment, buyers have released some of their pent up demand and accelerated their consolidation efforts in 2011. The continued improvement in the industry and the broader economy contributed to the most active year for M&A in the past 12 years.
Deal activity in 2011 was up 22% from last year with a record 315 deals, surpassing the good ol’ days of 2008, which boasted 307. Capping off the year was a busy fourth quarter, the most active one in recent, and not so recent, history. With 91 deals, the fourth quarter racked up nearly 30% of the activity for the year.
Insurance brokerages continued to lead the buyer groups with 257 deals, 82% of the total volume. Leading the category for the first time in five years was Hub International with 33 deals. Following Hub was Arthur J. Gallagher (25), which announced at least one deal every month this year. Rounding out the top five was Brown & Brown (20), Digital Insurance (11), and Marsh & McLennan (9). The top five brokerages accounted for nearly 40% of the category’s volume, and the top 10 accounted for 50%. Another 20% was attributed to buyers making their first acquisition to date.
The insurance and financial services and “other” acquirers, which include private equity groups, announced 27 deals in 2011. This represents an increase in volume from 2010 and 9% of the total activity.
Banks satisfied their renewed appetite for deals in 2011 stemming from the improvement of asset quality and capital stability. With 31 deals, the highest since 2008, bank activity was double what it was the previous year. Bank deals represented 10% of the total transactions, an increase from last year. In fact, it’s the first increase since the percentage began a steady decline 10 years ago when activity was 35%-45% of the total volume.
Retail transactions accounted for 82% of all deals, while wholesale accounted for 18%. The percentage of wholesale transactions is down slightly from last year, when the soft market and weak economy had a hand in reshaping this market segment. Property-casualty firms continue to dominate the line of business segment with 72%, the majority of those firms being full-service. In the benefit space, further clarity drew interest from buyers, raising volume 47% to 72 deals, or 27% of total activity.
While the bar was raised in 2011, January, a typically active month, was lackluster. With only 17 deals, 2012 is off to the slowest start in almost 10 years. The year may have started slowly, but pipelines remain strong and business owners are getting back to valuations they expected a few years ago. An optimistic outlook on the economy and a gradual turn toward a harder market should help propel M&A activity in 2012. One factor that could push potential sellers is the expected expiration of the capital gains tax rates at the end of 2012. If you want to sell in 2012, now is the time to start. Enjoy the party while it lasts. The hangover may be a real doozy!
