A glimmer of pickup in M&A activity this May with 15 transactions, compared to 13 in April. Five months into the year, the market barometer has reached 85, a healthy amount above last year’s 76. 

Forty-three deals were announced during the three-month period March-May, compared to 39 in the same period last year. On an annual run-rate, M&A activity is on track to surpass the 200 mark.

Throughout the entire year, at least one buyer category has been inactive. In May, and for the third time in five months, two buyer categories were inactive—banks and the “other” category, which includes conglomerates, title agencies and private equity. Insurance brokerages continued to gobble up agencies, accounting for 85% of year-to-date activity.

Even though the number of total transactions through May is down 31% from the heyday of 2008, the number of insurance brokerage transactions is nearly the same at 72 this year, versus 76 in 2008. The unique characteristic of the brokerage deals stems not from the amount, but from how many brokerages acquired. Fifty-three different insurance brokerages acquired 72 agencies through May, while only 37 acquirers were active through May 2008. Just eight of the 53 have acquired more than one agency, with all but one being well known acquirers. This statistic goes to show that, in this prolonged soft market and sluggish recession, agencies are in need of growth and more than usual are acquiring it.

With the acquisition of certain retail insurance agency and brokerage business-related assets of four agencies in Connecticut, Brown & Brown has matched its full year 2009 M&A activity with eight deals year-to-date, leading the scoreboard. The acquired operations generate approximately $7.2 million in combined annual revenues. Close behind is Arthur J. Gallagher with six deals. The next most active insurance brokerage is Marsh & McLennan Agency (MMA) with three.

In May, MMA continued its expansion into New England with the purchase of Bostonian Group, one of the largest regional insurance brokerages in New England, with about $14 million in annual revenue. MMA has amassed $185 million in annual revenue with just five acquisitions since late 2009.

Nearly as many banks have divested (five) as have acquired (six). The insurance and financial services category saw action for the first time since January. Deal activity in this category is off 60% from a listless 2009.

Overall benefits activity, including group medical, life and health, third party administrators, and consulting, remains strong. Active benefit acquirers that might have passed on an acquisition prior to healthcare reform passage are becoming more engaged and building demand for benefits firms. According to a recent Oliver Wyman survey of more than 1,200 employee benefits brokers, almost half said reform would drive major consolidation in the brokerage and consultancy landscape.

As the full effects and interpretation of healthcare reform become transparent, benefits firms spanning all employer size segments will be able to fully assess their competitive position and whether they will need to seek a transaction partner larger or smaller than themselves. Consequently, M&A activity will pick up in the benefits space. We’ve said it before, and we’ll say it again, the taxman cometh, and deal activity is starting to pick up because of the higher rates coming at the end of this year. If this is a major impetus to your acquisition or sale, get started now lest you turn into a pumpkin at midnight on December 31—and have a higher tax bill.