The Insurer TV: US small to mid-sized retail distribution deals in “late innings”
With over 5,000 US small to mid-sized retail distribution acquisition deals completed in the last decade, consolidation in this sector is in its “late innings” phase, according to John Kraska, president and managing director at Dowling Hales.
Speaking to The Insurer TV in the latest edition of Prospective, which this month focuses on M&A, Kraska said that with so many deals having already happened, fewer opportunities reside in this part of the market.
“There’ve been over 5,000 firms acquired in the last decade and the number of high-quality actionable firms to buy is dwindling, and I think we are in the late innings of that consolidation,” said Kraska.
But speaking more generally about the wider US distribution space, Kraska said he expects deal activity to continue to accelerate 2021, as it did in the first quarter and latter stages of 2020.
According to data from Dowling Hales, there were over 800 transactions in the distribution sector in 2020, with over 20 percent of those taking place in December.
“That pace has continued and even accelerated in 2021,” said Kraska, who cited Covid-19 as having had a big impact on the levels of deal activity.
“First, the distribution space proved to be a durable sector with brokers growing organically despite the pandemic. Secondly, this resiliency only fuelled demand to acquire distribution businesses as they performed well, and the fact they were meeting their debt obligations during the pandemic made them even more attractive,” explained Kraska.
Kraska also alluded to the shift in Washington DC and the potential change in tax policy, which he said will “only fuel firms to consider accelerating their desire to consolidate”.
Value creation is also a big driver for further deal activity in the distribution space, according to Goldman Sachs’ head of FIG Americas Pat Fels, with this activity leading to possibly more broker IPOs in the future.
Fels said the amount of value creation and wealth creation that’s come from the broker M&A model in the last 10 to 15 years has been “pretty breathtaking”.
“If you think about all the value creation that came over the last decade for a lot of these private equity-backed brokers, which are now incredibly large and incredibly successful, I’ve got to also believe there will likely be more consolidation among some of them,” he said.
“Some have also gotten quite large and have stayed private far longer than I think most people expected and it wouldn’t surprise me if we start to see a few brokers go public. You’ve only got to get one to go and experience a successful IPO and there could be a lot of close followers.”
Click the link below to watch our latest edition of Prospective, which focuses on one of the industry’s most talked about topics – mergers and acquisitions (M&A).
Prospective - M&A: Will the momentum continue?