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Agent and Broker Mergers & Acquisitions: 3rd Quarter 2022 Activity

Posted on December 01, 2022

The Q3 2022 Merger & Acquisition Update prepared by Optis Partners shows 554 property and casualty related transactions in the U.S. and Canada for the first three quarters in 2022 as compared to 644 transactions in the first three quarters of 2021. There were 195 transactions in the third quarter.

Although activity is down from the all-time highs of 2021, the number of transactions is in line with the five year average. The report does suggest that the rising cost of capital may lead to tightening in the underwriting of deals and may, in the longer term, put a cap on valuations.

Transaction pricing is generally a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization), which has been adjusted to reflect the normalized earnings anticipated by the buyer. The payment terms generally include a cash payment (and in some instances an equity interest in the buyer) at closing and an earn-out payment. The upfront payment typically approximates 85% of the transaction value and the earn-out component (achieved if EBITDA meets certain growth targets) is generally payable over a one to three year period. The owner-producers will be expected to enter into employment agreements and non-solicitation and non-competition agreements.

Agency and broker purchase transactions are commonly structured as asset purchases. The asset purchase structure allows the buyer to acquire the core operating assets and exclude the owner’s non-operating assets, e.g., automobiles, art and real estate. More recently, buyers who issue equity in addition to the cash consideration of the purchase price have been willing to structure the transaction as part sale of assets and part capital contribution by the owners to enable the selling owners to rollover or defer the tax on the value of the equity component of the purchase price.

Planning for agency succession is an ongoing process. With private equity and other buyers continuing purchasing activity, that planning should include consideration of a sale to a third party. Knox Law has a history of representing both agent and broker buyers and sellers and would be happy to work with you.

David M.Mosier

David M. Mosier

David M. Mosier's practice includes business and tax transactions, retirement benefits, designing and drafting of employee pension and welfare benefit plans, and more.



William B.Helbling

William B. Helbling

William B. Helbling concentrates his practice in the areas of business and tax law, mergers and acquisitions, banking and commercial lending, nonprofit and tax-exempt entities, and intellectual property & technology.



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