Insurance Services M&A Update – December 2024

Active Insurance Services Sector Continues to see Consolidation through M&A

Capstone’s latest Insurance Services M&A Update reports that the sector’s three main segments—Insurance Distribution, Claims Services, and Underwriters & Specialty Carriers—have experienced increasing demand and attention from the Private Equity industry.

Insurance Services has proven to be a thriving sector of the FinTech & Services industry due to its recession resilience and the advent of mature insurance technology (InsurTech). Sector participants have traditionally included distribution firms, claims management providers, underwriters, and insurance carriers, focused on a plethora of niche products. A robust track record of recurring revenue streams, meaningful organic growth, and healthy margin performance has upheld the broad and diverse offerings of the sector. These qualities have also made the Insurance Services sector a prime attraction for private equity dealmakers looking to scale independent players and achieve multiple arbitrage on their investments. Additionally, the merger and acquisition (M&A) environment has been bolstered by the sector’s vast middle market (<$500 million in enterprise value), which has comprised 76% of deals since 2019.

The Insurance Services sector has historically produced high margin businesses with recurring revenue profiles drawn from a recession resilient operating model. Through Insurtech advancements, market entrants have the ability to stand up new insurance businesses within a year. This has allowed for more nimble middle market operators who can achieve EBITDA margins of 30% or more. Large legacy operators in the Insurance Distribution segment have been able to achieve this level of EBITDA margin performance with traditionally higher costs and less flexible operating structures.

The fundamentals of the sector have provided sponsors with attractive acquisition opportunities, as insurance spending has typically been a non-discretionary item for consumers. Additionally, the Insurance Services landscape has remained highly fragmented despite the high volume of consolidation. Independent service providers have comprised the bulk of acquisition targets, enabling sponsors to easily roll-up or scale smaller businesses. This has also allowed for multiple arbitrage where smaller businesses can garner double-digit EBITDA multiples, and scaled businesses can achieve premium valuations. In addition to private equity buyers targeting the space, larger strategic insurance brokers have begun to increase their acquisition activity.

Also included in this report:

• The number of M&A transactions announced or closed in the space with historic benchmarks and buyer breakdowns.
• What the EBITDA and Revenue multiples have averaged over the past five years.
• Insights into deal activity and drivers in each of the sector’s three key segments.

Capstone Partners’ Financial Technology Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Insurance Services sector. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Insurance Services M&A trends featured in this report or to speak with one of our Insurance Services M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.