Firms Turn to Roll-ups to Find Instant Growth
Stacy Kirshner, Managing Director with Alvarez & Marsal Transaction Advisory Group in New York, explained in the article “Firms turn to roll-ups to find instant growth” printed in Pensions & Investments magazine why private equity firms are increasingly turning to acquiring and merging small insurance companies.
“We are in a very unprecedented time in M&A,” said Stacy Kirshner, a New York-based managing director with Alvarez & Marsal Holdings LLC's transaction advisory group.
"There was a thought going into 2021 that there would be an increase in capital gains taxes, causing volume to increase,” Ms. Kirshner said. "There's a significant concern of private equity investors and also a concern of privately held businesses that if they sell next year, they would get taxed at a higher rate."
“There has also been a surge in activity in the insurance area. Historically, buyers concentrated on property and casualty insurers, but now they are most interested in investing in life and health insurers, particularly those serving the aging baby boom generation, Alvarez & Marsal's Ms. Kirshner said.
"Buyers love the insurance distribution (brokerage) space. It has highly, highly predictable revenue streams with high margins," she said. "2020 was no exception to that … Insurance brokers did pretty well during COVID-19."
“What's more, growing competition in the insurance brokerage area means that to generate a desired profit for investors on exit, it is more crucial than ever that insurance brokerage companies diversify their offerings, which they are doing through acquisition, Ms. Kirshner said.
“In the past, investors could roll up insurance brokerage companies, for example, sell the larger company for more than investors paid for all the companies — known as "multiple arbitrage" — and "expect to ... make a pretty good profit for your investors.”
