’As a broker, you don’t want to be the last one standing,’ says head of M&A

Brokers have been warned that they should not become the “last one standing” when it comes to being acquired as the “significant” reduction in the amount of those trading in the UK continues.

That was according to Peter Blanc, Howden’s head of mergers and acquisitions (M&A), who told Insurance Times that broker M&A deals across the UK had now peaked with the broker market “definitely shrinking”.

This came after figures published by FTI Consulting in April 2023, which revealed that while the UK and Ireland were the most active countries in Europe for M&A in 2022, there were only 177 deals completed in the year – a decline from 197 in 2021.

“Deal activity in the region may have peaked,” FTI Consulting said.

“The decline reflects the increased saturation of the UK and Irish markets, particularly in the availability of broker targets.”

Blanc said that the number of brokers across the UK had dropped from around 3,000 in 2015 to sub-2,000 in the current day.

“They are not disappearing, but the market is definitely shrinking,” he added.

“So logically, that will tell you that the number of deals would start to gradually reduce.”

Market response

The drop in M&A activity came after specialist insurance and reinsurance broker BMS warned earlier this year (19 April 2023) that economic headwinds could result in lower deal volumes.

These economic headwinds included volatile stock markets, debt financing restraints, rising interest rates, inflation concerns and geopolitical uncertainty.

Blanc said that brokers looking to sell up currently had a choice from a “wide range of buyers”, but stressed there may not be such a choice in a few years’ time.

“Logically, markets respond,” he added.

“If there is plenty of supply of brokers to buy, then the market responds with more and more acquisitive firms. As the market reduces in size, then the number of acquirers will logically reduce.

“As a broker, you don’t want to be the last one standing when there are not many attractive choices to sell to.”

Why sell?

Howden has made several acquisitions in 2023, including that of Media Insurance Brokers last month (5 July 2023) and Manchester-based Reich Insurance earlier in the year (3 March 2023).

Back in 2021, the broking group also snapped up Aston Lark in a large deal, which has gone on to make several acquisitions that have become part of Howden.

This included the acquisition of Plymouth-based insurance broker Curtis Marine this week (29 August 2023) and Kegra Limited the week prior.

Blanc explained that one of the reasons brokers may be choosing to sell up was because of new regulations.

For example, the new Consumer Duty, which came into force at the end of last month (31 July 2023), has created new requirements for firms within the sector to ensure and demonstrate positive customer outcomes around four metrics.

This includes products and services, fair value, consumer understanding and consumer support.

“With all the demands of Consumer Duty, the compliance requirements on brokers are pretty high now,” Blanc said.

“If you’re a relatively small broker, then a lot of that falls on your head. Quite frankly, if you have this ever increasing regulatory burden and can get out at a pretty high multiple, why wouldn’t you?”

Blanc added that he was not surprised the UK was continuing to lead the way on insurance deal volumes, with there being buyers “at every tier”.

“There are buyers for the very biggest and this goes all the way down to buyers for the very smallest,” he said.

“So, it’s a really vibrant market for M&A and it does not really surprise me that we are still leading the way.”