The coronavirus pandemic is changing some of the dynamics of broker mergers and acquisitions, but deals will continue to be made amid the outbreak, according to Marc Cohen, president and CEO of Hub International Ltd.
The Chicago-based brokerage announced the purchase of B&G Group Inc. in Plainview, New York, on Monday, which adds 100 staff to Hub, and on Tuesday it announced the purchase of the employee benefits division of The Healy Group Inc. in South Bend, Indiana.
Hub is reviewing other deals and expects to announce further deals “in the near future,” New York-based Mr. Cohen said in an interview with Business Insurance.
The COVID-19 outbreak, however, has brought increased scrutiny to deals in terms of pricing and reviews of the business mix of acquisition targets, he said.
Pricing has changed, Mr. Cohen said, “because of the uncertainty in the revenue stream of the agency, that’s really what’s causing the repricing. It comes down to the uncertainty – what will their book of business look like 12 to 24 months from today?”
Before the coronavirus pandemic, “you were looking at some of the highest multiples being paid for agents and brokers in the history of our business,” he said.
Now, with “many unknowns as related to what business will look like in the next 12 to 24 months, there’s definitely more of a conservative approach the pricing of new acquisitions,” Mr. Cohen said.
The pandemic also has led to changes in the “underwriting” of the deals, he said.
“For any given agency, what’s the mix of the industries their clients are in? Are they heavy in hospitality, construction, or oil and gas? …We’re looking at that mix, the diversity in client base and the lines of coverage,” Mr. Cohen said, in addition to attributes such as leadership and culture.
In addition, mobility and the ability to work remotely has risen in prominence during the pandemic, he said.
“It’s frankly one of the first questions we ask,” Mr. Cohen said. “What are the capabilities of your people to work remotely and to connect into your network and systems and have the ability to service clients and prospect for new business.”
Another change in the process is the lack of personal contact, although technology such as videoconferencing has helped blunt that effect.
“We can’t go out and make physical visits to the office and meet with key employees,” Mr. Cohen said. “Tech helps, but it’s not the same a sitting down with a team of producers.”
Hub can still access data and other information at a company it is considering buying, but “what’s missing is that human element of actually meeting the agency principal,” he said adding that Hub sees some five to ten new prospects each week.
Insurance agent and brokers merger activity has reached record levels over the past several years, with 649 deals recorded in 2019 and 643 in 2018, according to Optis Partners LLC, although purchases slipped in the first quarter of 2020.
For more information on the state of Lower-Middle-Market M&A, contact me at:
Eric J. Gall
239-738-6227
[email protected]
