SAN DIEGO – Higher interest rates have slowed mergers and acquisitions among insurance agents and brokers, and deals may soon be restructured to reflect increased M&A expenses, said Greg Zimmer, CEO of Alliant Insurance Services Inc.
“We’re at that inflection point now where it’s costing buyers more, but sellers aren’t necessarily prepared to accept that, and that has caused this slowdown in the number of deals,” he said during an interview this week at Riskworld, the Risk & Insurance Society Inc.’s annual conference.
Agent and broker M&A slowed in the first quarter, following a nearly 25% drop last year, according to a recent report by Optis Partners LLC. However, brokerage valuations continued to rise last year, according to MarshBerry Inc.
“It’s more difficult for buyer and seller to come to an agreement on what the appropriate price is. I think that will play itself out over time, and there are a number of ways to do that,” said Mr. Zimmer, who took over as CEO last month.
If sellers remain unwilling to settle for a lower valuation, acquirers may pay less upfront and more during earnouts, which are periods, usually lasting three years, when sellers receive additional payments, depending on the performance of the acquired business, he said.
“The headline price may stay the same, but the seller is taking on more risk in order to achieve that number,” Mr. Zimmer said.
Aside from acquisitions, Alliant remains active in recruiting brokers. Rival brokerages have often sued Alliant, alleging that producers joining Alliant had broken nonsolicitation agreements. Mr. Zimmer said the brokerage usually seeks to settle with the other brokerages before the cases reach court but noted that recent regulatory changes announced by the Federal Trade Commission favor employees seeking to move to another company.
While the FTC’s ban focuses on noncompete agreements and is being challenged, he said “the trend line” is for more employee rights.
“It’s good for employees, and we’re supportive of the changes,” Mr. Zimmer said.
