In 2024, the insurance brokerage industry experienced a significant surge in mergers and acquisitions, highlighted by several major deals. Notable among these was Aon’s acquisition of NFP and the anticipated merger between Gallagher and AssuredPartners. This wave of activity is reshaping the landscape for brokerages, prompting mid-sized firms to rethink their strategies.
Phil Trem, president of financial advisory at MarshBerry, emphasizes that the current environment forces brokerage leaders to ask tough questions about their future. He suggests that whether a firm generates $10 million or $1 billion in revenue, leaders must consider if they are investing in the necessary services and infrastructure to remain competitive. The choice now isn’t just about building these capabilities in-house; many are weighing the option to join forces with firms that have already made these investments.
This shift is particularly pressing for mid-sized brokers. Trem notes that the decision is evolving from a simple "build versus buy" scenario to a "build versus join" dilemma. As firms reach critical points in their growth, they must evaluate whether partnering for enhanced solutions is more beneficial than remaining independent.
The demand for specialization is rising, and brokers need to adapt. Many firms struggle to provide the infrastructure and expertise required to compete effectively. This pressure is felt across the industry, regardless of whether firms are backed by private equity or operate independently.
The changing dynamics are also reflected in buyer behavior. Over the past decade, buyers have become more discerning, focusing not just on growth but on the quality of that growth. Trem explains that there is now a deeper analysis of organic growth, with buyers favoring firms that have developed sustainable sales engines rather than those relying solely on acquisitions.
Valuations in the brokerage sector have reached a plateau. While top-performing firms showing consistent organic growth are seeing slightly better pricing, those failing to demonstrate real growth are facing declining valuations. Trem points out that firms in the $50 million to $500 million range need to confront their future honestly. Specialization is becoming essential, and generalist approaches may no longer suffice.
Looking ahead to 2025, the pace of dealmaking remains brisk, with expectations that it may level off later in the year. Trem highlights that many firms rushed to complete transactions early in 2025 due to concerns about potential tax increases under a new administration. However, while activity remains high, a massive increase over the previous year is not anticipated.
As the brokerage landscape continues to evolve, firms must focus on driving results that will maintain their valuations. The question now is how long this momentum will last and whether firms can sustain their competitive edge in a rapidly changing environment.