It appears the industry may be settling in to a new normal, or perhaps it’s returning to an old one, a year after the completion of the 25-month wave of deals that concluded at the end of 2022. The deal volume each quarter of 2023 was at or above each of the quarters before this rush of deals, according to Optis Partners.
Noticeable is the consistent volume of transactions in 2023 year with a slight increase each quarter, as one may expect. There was also no mad-dash to the finish line at year end that we typically see as 10% of the year’s deals were done in December compared to an average of 20% over the prior 3 years (peak year was 2021 when 31% of the deals were done in December).
When 2023 deal count is compared to the 3 years prior to the onset of the wave, an 11% increase was tallied. This increase came about despite a smaller supply of sellers as over 2,300 firms sold during the bubble.
Looking a little deeper at the data we find that of the 249 fewer deals done in 2023, just two firms accounted for nearly 60% of the decline: perennial deal-count leaders Acrisure (71 fewer deals) and PCF (69 fewer).
As the economy appears to stabilize and perhaps the U.S. finds the soft landing the Fed is trying to achieve, we fully expect to see the pace of deal flow pick up where it left off in 2023. While some buyers will continue to slow their deal activity as they devote resources to integration or further digest the debt on their balance sheets, others are as active if not more so than ever in a field of competition that has slightly fewer active players.
If the above continues to play out as described, we also expect valuations for the better firms to hold and perhaps increase slightly. Valuations for the other firms will remain strong, though soften somewhat. Regardless of the quality of the firm, underwriting of transactions should remain tighter than in the bubble years.
Highlights of 2023 M&A Activity
- 782 total deals in 2023, down 24% from 1,031 in 2022 and 8% below previous 5-year average 707 retail, wholesale, and TPA transactions in 2023, also down 24% from 929 in 2022
- 204 deals in Q4-2023, 32% less than same period 2022 and 24% below prior 5-year average
- Hub Int’l led buyers with 65 deals in 2023, down 7% from 2022; up 6% over the 5-year average
- Following were Broadstreet (59 deals in 2023), Inszone (46) while Acrisure, Gallagher, and World all completed 36 deals. Broadstreet and Leavitt increased the number of deals the most in 2023 at 70% each while Acrisure’s count slid the most at 66% compared to 2022
- Deal volume was lower for all buyer categories in 2023: Private Equity-Backed / Hybrid (“PE/Hybrid”) buyers reported 543, down 27%
- Privately-owned buyers reported 167, down 16%
- Publicly traded brokers reported 47, a decline of 13%
- Private Equity/Hybrid buyers completed 69% of the 2023 transactions, down from 76% in 2022