Arms race among strategic buyers driving heightened MGA M&A activity

Strong demand for specialty MGA assets among strategic buyers including Ryan Specialty and TIH is driving M&A activity in the space and sustaining high valuation multiples, in contrast with a fronting carrier sector that has not seen a predicted consolidation wave.

At the Program Manager conference in New York in May, panelists predicted M&A activity for delegated underwriting authority businesses would pick up through 2024.

Insurance Advisory Partners co-founder Tony Ursano forecast an MGA M&A boom with sustained tailwinds behind the business model and strong demand from buyers.

“We see tons of retailers who want to have large MGA platforms, we see wholesalers who have large MGA platforms and want to get larger, other MGAs looking to acquire, as well as a whole cadre of private equity,” he commented.

Meanwhile, Ryan Specialty Underwriting Managers CEO Miles Wuller said large independent platforms that have invested in delegated authority would be able to “make some noise and make themselves distinct” at a time when a raft of “exceptional” family- and entrepreneur-led MGUs were expected to come to market.

Sources said that many of the dynamics cited as driving MGA M&A activity remain in place, with some becoming even more acute.

“The multiples that have recently been paid are further emboldening MGA owners and sellers,” said one senior banking source.

They added that other factors include those that are geography specific such as capital gains tax changes in the UK, or the potential for changes in the US in the aftermath of the presidential election, as well as the sense that the peak of the market may have passed, and the need for scale.

“If the market is softening a little bit, that’s a concern for sellers, and of course scale is becoming more important. There’s been a string of transactions, and I think there will be a lot more coming before year-end,” they continued.

Active wholesalers

And in the months since, Wuller’s firm has arguably led the way with a series of high-profile acquisitions in the delegated underwriting authority space following its deal to buy Castel, which closed in May.

In August it announced its largest deal since All Risks with an agreement to buy builders’ risk specialist program US Assure for $1.075bn up front and up to a further $400mn in contingent consideration.

That was followed by deals announced to buy certain assets of Greenhill Underwriting Insurance Services in the US and Geo Underwriting in Europe, and then in September an agreement to buy Ethos Specialty’s property and casualty business from Ascot.

Amwins has also been active in 2024 with its deal to acquire Ryan Scheinfeld-led MGU platform Risksmith Insurance Services, although sources said the firm tends to “pick its spots” in M&A.

And since being spun off by Truist, TIH has publicly stated it is back on the front foot and looking to grow under its new owners led by Stone Point Capital and CD&R, including as an active acquirer of MGAs.

TIH Underwriting CEO Bill Goldstein told this publication earlier in the year that the platform – which includes Starwind and AmRisc – would look at select M&A opportunities as well as team lifts and program launches as it starts “playing offense again” and using the currency of its private equity ownership model as a draw.

Sources said that with the sale of sister company McGriff Insurance Services to Marsh now announced, TIH is “laser focused” on MGA consolidation and acquisitions, as they described an “arms race” between the wholesalers to add delegated authority assets.

It is not just the giant wholesalers that are aggressively pursuing targets, however.

Strategics vs PE

Other potential strategic buyers are thought to include Risk Strategies, including through its wholesale platform One80; Marsh’s Victor platform; Brown and Brown – which houses a National Programs division as well as wholesale platform Bridge Specialty; and Hub, including through its Specialty Program Group arm.

Private equity-backed MGA platforms such as NSM are also thought to be selectively active in pursuing acquisition opportunities, as is Acrisure with its Wholesure platform and Dual owner Howden.

Meanwhile, interest from private equity firms to invest in assets remains strong – including more recently formed platforms that are still going from one financial sponsor to another.

Overall though the balance in deal activity between strategic and private equity buyers is shifting, with an increase in the share of transactions involving the former.

From a seller’s perspective, the decision around whether to sell to a strategic acquirer such as a wholesale or retail platform is often based on the outlook of the management team.

“Where there’s a seller or a management team that simply wants to maximize value they’re going to go with a strategic. But where somebody wants to continue to manage an independent business and ride and roll then there’s a ton of private equity guys who will do that,” a banking source observed.

“I feel like it’s shifting a little bit towards strategics as people get to the point where we know that we’re going to sell and to the extent we get integrated, so be it. We’re going to get a great price, a good earnout, our people will be reasonably protected, and we don’t need to be independent anymore,” they continued.

Speaking on a recent LinkedIn video post on M&A activity involving specialty insurance distributors such as MGAs, wholesalers and program managers, George Bucur, co-head of MarshBerry’s specialty practice, said that the overall volume of deals in the space may fall short of last year’s record of 181 transactions.

He suggested this was not because of a lack of demand by the buyer community.

“The interest from the buyers remains strong for all the reasons we’ve talked about historically: strong growth, proprietary products, the ability to create value … the biggest indicator that you can point to is valuations. Valuations have remained strong in 2024, especially compared to the all-time highs we’ve seen the last several years,” he commented.

He said that buyers have instead been asking about the pipeline and flow of specialty sellers in the marketplace.

“The response is that it’s a limited population. There’s just not that many specialty organizations that are out there, especially after we’ve seen near record highs in each of the last several years,” said Bucur.

Fronting consolidation yet to happen

The steady flow of M&A deals in the MGA sector is in stark contrast to the lack of activity in the fronting space.

With more than 30 active pure or hybrid fronting carriers operating in the sector, there has long been talk of consolidation in what some view as an overcrowded marketplace.

The reality is though that there have been more new entrants setting up in the last 12 months than M&A transactions.

The only notable M&A deal came with the drawn-out acquisition of Accredited by Onex from R&Q in what is widely viewed as a cut-price deal.

A mooted sale of Sutton National has yet to materialize and the only live example of a deal that would represent consolidation between players in the space is the potential sale of Falls Lake Insurance, with Concert Group linked as a potential acquirer.

The sale of Transverse to Mitsui Sumitomo Insurance in 2023 at a high-water mark valuation was expected to herald a flurry of other transactions.

The lack of activity has been attributed to a number of factors, including the challenges faced by some fronting carriers from recent missteps in the market around collateral, such as the fallout from the Vesttoo fraud.

“Those businesses are so highly levered and it only takes one reinsurance contract to be disputed to create accounting, tax and rating implications,” said one source.

Another described a situation where private equity backers entered the space viewing fronting platforms as “service” businesses with minimal risk taking, setting valuation expectations accordingly.

But that has shifted as market dynamics have contributed to fronting carriers retaining more premium and risk.

This has created a stalemate where acquisitive carriers may have the upper hand, as private equity is on a general timeline to hit return hurdles for their investors and is left with a valuation mismatch.

“Deals will get done in the space because they have to, but the timeline for when that happens is turning out to be longer than anticipated a year ago,” they said.