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New analysis of deal values in the insurance broking sector shows that earning multiples have risen by more than 25% over the past year.

According to Deloitte, multiples in excess of 10 times have been achieved in many insurance M&A deals over the past year, a rise from the 7-8 times EBITDA that was typically paid prior to 2006.

Deloitte argues that demand is a key factor pushing up prices. Whilst much of the insurance broking sector M&A activity was previously driven by broker consolidation, 2006 and the start of 2007 have seen insurers re-enter the market for insurance distribution.

Commenting, Ian Clark, insurance partner at Deloitte said: “The interest of insurers in acquiring distribution channels has not only increased demand but has fundamentally changed the way in which insurance distributors are valued. Insurers are increasing the multiples offered by paying upfront a share of estimated future underwriting profits.”

A significant trend in M&A activity has been the consolidation of the mid-sized insurance brokers. Of the top 50 insurance brokers in 2006 as measured by UK brokerage, 20% have been acquired since January 2006.

Predictions for the future
Deloitte predict that insurance broking deals will continue to accelerate and argue that double digit multiples are here to stay.

As the insurance brokers recognise the values being obtained in the market, they are considering their options.  It is expected that the current level of M&A activity involving the brokers will continue for the next 12 months.

Garth Hackshall, financial services industry advisory director at Deloitte said: “Distributors are aware of their current high values and many are taking steps to take advantage of the appetite in the sector. The vendors who fully understand the value of underwriting profits generated by their customers will see the greatest returns from a sale.

He continues: “While there are now a number of factors already attracting private equity investors and large insurers to the market, there are also new avenues to be explored. The company that cracks the model for direct sales to the SME commercial market will open a floodgate of further M&A activity.”

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.