When you add up all the acquisition demand across the industry, it equates to about 30 viable buyers trying to acquire roughly $3 billion to $4 billion in revenue this year. 

By viable, I mean they have the resources and funding to complete multiple transactions in multiple locations. These buyers will acquire an average of $100 million to $133 million in revenue each. If the average revenue size per deal is $8 million, that’s 12-16 deals per buyer. But because the average target firm size is likely smaller, the number could be much higher than that.

It’s a staggering amount of acquisition when you think about it. And it’s been interesting observing how active buyers are attempting to attract their next acquisition target—and hopefully their next business partner. Each firm takes a different slant on an overall similar approach. At the end of the day, it really isn’t that much different from prospecting your next insurance client. 

Here are some of the approaches buyers use to build their pipelines. See if you can draw a connection to how your best producers build their book of business.

Cold-Calling: While few salespeople love cold-calling, it is sometimes necessary to create new relationships. Keeping in contact with firms (even those that believe they will never sell) is an important step. At some point, most firms will consider selling, and buyers know they need to be on the seller’s radar to make the initial cut. However, buyers’ philosophies vary when it comes to who makes the calls. A lot of it is relationship-driven and can range from the president/CEO to the regional president, an M&A team member, or an outsourced bird-dogging firm.

Networking: Relationships are a key driver of M&A activity. And industry events, working groups, carrier trips, etc., are a great way to develop strong relationships with agency principals, who may at some point consider selling their firm. Buyers rely on these events to continue growing their relationship base and putting themselves in the best position if their colleagues ever decide to explore the market.

Acquiring Referrals: When firms with a strong geographic reputation sell, they often get calls from their peers and competitors, who ask why they sold and why they chose that specific partner. We see this a lot with smaller roll-up opportunities. If a $10 million agency sells, a number of smaller firms (typically less than $3 million) end up reaching out. These firms could also be targets for sellers who proactively share their story. If there is conviction behind the message, it could mean more opportunities for the buyer. It’s similar to asking a client for an introduction to another prospect. Buyers can take advantage of their good work in one area to grow their opportunity in another. 

One final thought. No matter how good you are at your job, building a pipeline is tough work.  Doing it to create a pool of potential new clients, new acquisition partners, or new hires within your firm can be a grind. I am amazed at how many executives tell me they make calls to potential strategic partners and never get so much as a call back. I know owners are busy and get a lot of calls from firms looking to tell their story. And it’s easy to ignore them. But you never know when there’s an opportunity at the other end of the line.

Think of your own prospect list. Think of the relationships you have now that started as a cold call. One conversation might teach you something new about the firm on the other end. You might also learn something to help grow your competitive advantage in the marketplace. At a minimum, you will save yourself some future voicemails if you have a brief discussion and tell the buyer to check back in a year. The market is crazy right now. Keeping your options open and your relationships strong should only help you in the future. 

Market Overview

The first two months of 2016 continue to lag the prior two years, with a total of 55 transactions announced compared to 68 in 2014 and 84 in 2015.

AssuredPartners leads the pack with six announced transactions, followed by Hub International with five deals and USI and Confie Seguros each with three transactions. Brown & Brown, The Hilb Group, Arthur J. Gallagher and World Insurance Associates have all completed two deals each. 

The private-equity backed brokerages continue to lead the charge, with 26 announced transactions, or  47.2% of all deals. Independently owned agencies and brokerages have completed 18 deals, or 32.7% of all activity. Public brokerages have completed four deals, and bank-owned agencies account for three. 

We do expect to see a rise in activity, as our experience shows most serial buyers are continuing to try to acquire 5%-10% of their prior year revenue to complement (or supplement) their organic growth. With property and casualty rates softening, firms will either need to improve their ability to write new business or enhance their M&A capabilities. Hopefully a two-tiered approach will be applied, but either way, M&A activity doesn’t appear to be slowing any time soon.