Marsh, Berry & Company Inc. has released an overview of the state of the insurance distribution system for 2008 and beyond. This research report documents historical and projected insurance agency/broker value, merger & acquisition activity, and organic growth best practices that can help agencies and brokers exploit changing market dynamics.
Based upon current economic indicators, declining organic growth rates, and a shift in merger and acquisition supply and demand dynamics, MarshBerry is forecasting average agency/broker valuations to drop. Average organic growth rates during 2007 fell to around 3.7 percent. Combining this with projections of a slowing economy and continued soft market insurance rate conditions, future earnings enhancements for agencies/brokers will become increasingly difficult.
Projected M&A deal pricing will also stabilize. After several years of fierce buy-side competition between public brokers, banks, and private equity firms drove deal pricing to premium levels in excess of 8.0X EBITDA, the future will experience stabilizing pricing for the masses. The insurance market will see fewer buyers combined with an increase in supply.
Deal supply by independent agencies will expand over the next several months for a number of reasons:
— Stock is too narrowly held and the average weighted age of owners is in the mid 50s
— Continued soft market conditions will hinder internal return expectations
— The fear of capital gains increases
— The threat of national health care
— Falling agency valuations
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Source: Marsh, Berry & Company Inc.
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