Ontario saw a record 48 finalized brokerage transactions in 2022, mostly led by consolidators, said Suzanne Pountney, president of the Insurance Brokers Association of Ontario (IBAO), during the Young Broker Conference in Niagara Falls.
“This is up 60% over last year. It also makes 2022 the highest year for M&A activity ever, according to IBAO databases,” Pountney said during the president briefing.
Comparatively, there were 15 deals in 2021, 22 in 2020, 40 in 2019 and 39 in 2018, according to IBAO data.
But the nature of M&A has been changing during this five-year period. As recently as 2018 and 2019, most of the M&A activity happened between one community broker and another, smattered with the occasional large broker purchase, Pountney shared.
“Two or three years ago, the majority of M&A activity was still local-to-local. This past year, that is not what’s happening,” she said.
“Of the 48 mergers in our database [in 2022], only six of them were local broker-to-local broker, meaning that the overwhelming majority of brokerages — 87% of all M&A activity — were [sales] to the larger consolidators.”
There are currently 422 total brokerage businesses in Ontario, down 8% from the previous year, according to IBAO’s records. However, there are 1,237 office locations — equivalent to 2022’s numbers.
“Even though the total number of businesses is down as a result of consolidation, the number of actual office locations is about the same relative to 2022,” explained Pountney. “This means that even though brokerages are selling to one another, they seem to be keeping their individual office locations open across the province.”
There are three main reasons why consolidators have increased their acquisition efforts in Ontario, Pountney explained.
“The first reason — I think this is the biggest reason — is that brokerages are very good investments, and the investors with deep pockets know it,” she said. “Brokerages are valuable, stable, dependable businesses, and that makes them attractive to those looking to invest capital.”
The second reason is that many broker owners are nearing retirement age and looking for an exit strategy.
“…Most brokerages are owned by a demographic of people that is homogenous,” Pountney added. “What I mean by that is that most brokerages are owned by older people who are looking to retire, and when they’re looking to retire, they’re looking for an exit strategy.”
And lastly, with the cost of business increasing, brokers are looking for ways to centralize their costs.
“Costs like technology, for instance. Merging with a trusted partner is one way to achieve those expense savings,” said Pountney.
“Now, I’m not saying that all business owners should run out and sell their brokerage. In fact, I think that there’s a desperate need for entrepreneurship and youth in the industry. And I applaud those brokers that are investing in their own succession plans and building up their top talent.
“The truth is that there is a market for every type of business model, large or small,” she said.
Feature image by iStock.com/VectorInspiration
