While transaction volume has declined year over year, MarshBerry still expects 2023 to see the third highest transaction volume ever.
During 2023, mergers and acquisitions in the insurance brokerage industry declined approximately 17%, according to Marsh, Berry & Co., LLC, which notes that the reported market movements point to a positive year ahead for M&A activity.
The overall decline in 2023 is dramatic on its face, but Marshberry noted that 2021 and 2022 saw record levels of M&A activity. 1,066 deals were announced in 2021, while 2022 saw 903 deals announced.
Currently, the 751 deals announced in 2023 will represent the third-highest number of transactions in the industry’s history.
During the past year, 10 companies acquired 43% of the announced deal. The four most active buyers accounted for more than 21% of the total 751 deals announced, according to MarshBerry.
Although overall transaction volume has declined from record levels, valuations have continued their upward trajectory. During 2023, the total potential purchase price for all brokerages was 7.8% higher than at the end of 2022.
Will 2025 mirror the record-setting years?
During the fourth quarter of 2023, economic conditions began to show the potential for insurance mergers and acquisitions, Marshbury reported. Interest rate increases succeeded in cooling inflation, and the Federal Reserve responded by halting interest rate increases.
According to Marshberry, interest rates may be lowered next year, which in turn could lead to increased buyer demand.
Furthermore, the potential repeal of the Tax Cuts and Jobs Act of 2017 may push more sellers into the market in 2024. The tax cuts expire in 2025 and income tax rate increases could be seen in 2026.
Marshberry doesn’t expect the “middle American” tax cuts to disappear and expects politicians to make deals to keep those rates where they are. It is possible that we will see further tax increases as a result, and it is possible that the richest 1% of Americans, business owners, and capital gainers will be targeted. And with potential tax increases on the horizon, more brokerage owners could be incentivized to sell.
These potential motivating forces for buyers and sellers could lead late 2024 and early 2025 to see a strong level of M&A activity, MarshBerry reported.
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