The insurance brokerage industry has long relied on M&A as a core growth strategy driven by accessibility, low-cost capital and strong free cash flow generation. Although recent Federal Reserve cuts have provided some relief, Trading volumes still fell by nearly 20% in 2024 Comparing with 2023.
Despite M&A headwinds, brokers continue to face huge pressure on growth. Already mitigating high debt ratios and organic growth, brokerages are evaluating alternative ways to bring new capital sources and create long-term value. Broadly speaking, there are three main ways for brokers to access additional liquidity. These are financial sponsors, strategic acquisitions, and investments from initial public offerings.
1. Investments from financial sponsors (for example, private equity)
Financial sponsorship remains the most common source of capital funds. Over the past decade, private equity (PE) companies have accounted for the majority of transactions responsible for more than 70% of brokerage companies’ M&A activities in 2024. The brokerage model is attractive to these investors due to predictable cash flow and strong operating profits. , and capital light structure. Furthermore, unlike insurers, brokers do not face actuarial or interest risks, making them attractive investments within the insurance value chain.
To ensure financial sponsorship, brokers need to demonstrate their ability to consolidate at scale, expand margins and achieve double-digit growth. While general processes and integrated technologies are not prerequisites, they offer a competitive advantage by promoting greater operational efficiency and revenue synergy. Beyond strong financial performance, financial sponsors prioritize the following characteristics:
- Scalability – A track record of successful institutional integration, centralizing critical functions, and creating enterprise functions for new acquisitions to take advantage of.
- Accurate report – Standardized data elements and reporting packages that enable performance management and transparent investment analysis.
- Technology-enabled operation – A well-integrated technology stack that minimizes technical debt, enhances automation and drives data-driven decision-making.
Best in class brokerages actively implement standardized operating procedures (SOPs) and workflows to ensure stronger control, consistent processes and accurate finance. Those who have achieved high levels of operational rigor and transparency are best at directing premium ratings from financial sponsors.
2. Strategic Acquisitions
Strategic acquirers in the insurance brokerage industry are increasingly targeting companies that offer scalability and complementary features. Additionally, standardized processes and centralized technology infrastructure prioritize brokers, streamline operations and facilitate integration. Specifically, the key factors that strategic buyers consider are:
- Complementary features – Brokers with unique specialised areas (e.g. niche industry expertise, specialized product lines, or geographical access) that enhance the existing operations of the acquirer.
- Intensive functions – Brokers with centralized finance, HR and IT capabilities are more attractive due to their relatively easy integration and the ability to redeploy talent across the business.
- Technology-enabled operation – A modern integrated infrastructure that minimizes technical debt and seamlessly integrates into the existing technology stack of acquirers.
Operations and financial management are particularly important for public company acquirers. Best-in-class brokerages establish robust governance, documented operating procedures, security protocols, and financial and operational audit processes to accelerate preparation for integration.
3. Initial public recruitment (IPO)
Preparing for an IPO is a critical task, requiring a high level of operational maturity and strict control. This pathway is usually pursued by large brokers that go beyond alternative capital strategies. While many of the operational and technical requirements are consistent with the requirements for strategic acquisition, IPO preparation requires additional maturation in three key areas.
- Financial Report – Public companies must meet strict financial reporting standards and ensure timely and accurate financial statements. Beyond core finance, brokerages should provide directional commentary on operational metrics, such as changes to renewal rates and pricing.
- Control and Compliance – Achieving sock compliance is essential for businesses that are preparing to publish. This requires a robust internal control framework, including job separation, access control, and regular audits, to protect data integrity.
- New corporate features – Companies preparing for IPOs should establish new functional groups such as investor relations, external communications, risk management, and strengthen existing teams (e.g. accounting, legal, compliance, etc.) . company.
Take the first step towards capital preparation
For brokers assessing their next capital move, advances begin with a clear understanding of their business and strategic goals. The following steps will help mediation prepare for the next liquidity event.
- Evaluate liquidity options – A suitable capital strategy depends on the size of the brokerage, growth trajectory and long-term goals. Small businesses may feel that financial sponsorship or strategic acquisitions are the most viable, but large brokers may need to prepare for an IPO due to limited alternative options.
- Understand the requirements for each path – All liquidity options come with their own financial, operational and compliance requirements. Brokers need to assess current state and decide what is feasible, taking into account existing infrastructure, resources and culture.
- Create a practical plan – It is important to identify the gap between current operations and the requirements of your chosen liquidity strategy. Brokers should prioritize initiatives that increase their appeal to investors and acquirers, such as improving financial reporting, operating standardization, or strengthening technology.
Taking a structured approach, brokers can access new capital sources, drive long-term growth, and confidently navigate the evolving market landscape.
Let’s talk
We have been actively supporting brokerages in navigating this evolving capital landscape. If you want to discuss more, Rob hugged her, Bob Besio or Robert Green If you want to discuss more.
