Page 32 - BusinessWest January 24, 2022

disciplines, like medical malpractice, life sciences, startup companies, or financial services. In the last two years, we’ve acquired 50 investment firms across the country, four or five of them in New England alone.”
Still, even at a firm with that kind of record, the sheer pace of M&A activity in recent years has been striking, Marini said. Last year, a record 798 insurance agencies were sold in the U.S. — break- ing the previous records of 711 in 2020, 653 in 2019, 580 in 2018, and 557 in 2017.
“Part of that was the pending increase in taxes — people were nervous the tax rate was going to go up significantly, and that may have given some of them the impetus to sell,” he noted.
Phil Trem, president of Financial Advisory for Marsh Berry, a leading M&A advisory firm for the insurance industry, noted the same dynamic.
“The heightened activity can be traced back
to a number of different factors. Firms who sold believed that they might be negatively impacted by a potential federal capital-gains tax increase and a shift in expectations by the insured com- munity,” he wrote on the firm’s blog. “While tax legislation was not enacted in 2021, there are still looming concerns that it could happen at some point in 2022. Will it be retroactive? Anything is possible, but at this point concern about a signifi- cant tax increase has waned.”
But other factors have been in play as well, Marini said. “I also think there’s some COVID fatigue in the marketplace, folks dealing with all the extra issues we’ve all had to deal with. Plus, honestly, the multiples folks are paying for these companies are significant.”
John Dowd, president and CEO of the Dowd Agencies, agreed, calling the current landscape
a “feeding frenzy” marked by “irrational exuber- ance” on the part of buyers. “We look at what’s a good fit, what’s a fair price. We’re not going to chase.”
Dowd, whose own firm has made some key additions recently (more on that later), sees a demographic shift in play as well.
“Baby Boomers, who built this modern-day economy and have been a powerful force in every industry across the country, have been retiring to the tune of 2
or 3 million a
year. That obvi-
ously includes
every segment
of the econ-
omy, includ-
ing insurance
agencies,” he
noted. “A lot of
agency owners
have reached
the point of
retirement,
and if they don’t have an internal succession or perpetuation plan in place, they might look to sell to somebody. That’s what’s going on out there.” As for that feeding frenzy, Dowd and Marini both noted that agencies are being sold for mul- tiples of the EBITDA (earnings before interest, tax, depreciation, and amortization) valuation formula that would have been uncommon just a decade ago.
“Our business models haven’t changed, so why have these multiples suddenly gone so much higher?” Dowd wondered. “It’s causing people to maybe sell sooner than they had planned, think-
ing the multiples will go away sometime, and they don’t want to miss out on an opportunity to mon- etize their asset.”
Pathways to Growth
There are two ways of growing an insur- ance company, Dowd told BusinessWest. One is organic.
“That’s what we do every day, trying to attract more customers and certainly hold onto and
“A lot of agency owners have reached the point of retirement, and if they don’t have an internal succession or perpetuation plan in place, they might look to sell to somebody.
JOHN DOWD
”
retain those we already have,” he said. “Then there’s growth through acquisition. Our philoso- phy and strategy is to do both. Any business plan is going to focus on growth, profitability, and retention. When you put together your growth plan and have a healthy balance of organic growth and growth through acquisition at a pace you can accommodate and not stress your staff and your balance sheet, that’s what we consider a good, strong, healthy philosophy for growth.”
Marini said HUB has made targeted invest- ments in niche-specific talent as a way to bet- ter serve customers, but has also not shied away from acquiring good-sized firms in the region
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