Insurance broking M&A deals up by a quarter

M&A of insurance brokers has increased in value by 25% over the past year according to a new report by UK financial consultants Deloitte.

The last 12 months, driven by an upsurge in demand as insurers seek to increase distribution channels, has seen multiples of over 10x in many deals, a dramatic rise on the typical 7-8x multiples paid prior to 2006.

Ian Clark, insurance partner at Deloitte, said: “The interest of insurers in acquiring distribution channels has not only increased demand but has fundamentally changed the way in which insurance distributors are valued. Insurers are increasing the multiples offered by paying upfront a share of estimated future underwriting profits.”

Consolidation of the insurance broking sector was the previous driver of M&A activity before the expansion into new areas, and continues to be a defining characteristic. Of the top 50 insurance brokers in 2006 as measured by UK brokerage, 20% have been acquired since January 2006.

For the year ahead Deloitte predicts insurance broking deals will continue to increase and that multiples of over 10x will no longer be unusual.

Garth Hackshall, financial services industry advisory director at Deloitte, said: “Distributors are aware of their current high values and many are taking steps to take advantage of the appetite in the sector. The vendors who fully understand the value of underwriting profits generated by their customers will see the greatest returns from a sale.

“While there are now a number of factors already attracting private equity investors and large insurers to the market, there are also new avenues to be explored. The company that cracks the model for direct sales to the SME commercial market will open a floodgate of further M&A activity.”