Consolidation is not complete in the wholesale transactional broking sector, while M&A opportunities abound in the binding authority and MGU spaces, according to Ryan Specialty Group founder, chairman and CEO Pat Ryan.
Ryan Specialty completed its largest deal last year with the purchase of All Risks, and earlier this month made its first significant acquisition since going public as it bought trucking specialist Crouse & Associates.
In an interview with The Insurer TV, industry veteran Ryan said that despite the major consolidation that has taken place in transactional broking to create three wholesale giants, opportunities for M&A remain.
“There are boutiques out there who need capital. It takes a lot of capital now to be able to serve your client with the appropriate technology, and a lot of boutiques are family businesses and have said, ‘I don’t want to commit that capital so I think I’ll join one of the larger firms and take advantage of the fact they’ve committed the capital and will continue to commit the capital.’
“So there will be a continuous flow of boutiques into larger wholesale brokers,” he commented.
But Ryan highlighted binding authority business as a segment that has not been consolidated to anywhere near the degree that transactional wholesale has, with the potential for a lot more M&A activity.
He also pointed to opportunities for further consolidation in the MGU and programs space.
“It’s very embryonic in terms of consolidation of those great program companies, which are often privately owned or family-owned businesses or entrepreneurs who have the same issue on technology.
“Frankly it’s more than technology; it’s access to the brokerage community and if you’re not large enough, with enough critical mass, scale, or differentiating talent, then you’re not included in the appointment opportunity or the RFP process. That has driven people to find a home with a larger broker, and there’s a lot more of that to happen,” he commented.
Finding value in M&A
With multiples in distribution M&A seemingly setting new records each year, Ryan said his firm is careful in selecting acquisition targets.
“It has to have a good cultural fit and it has to be strategic. But we have to have a clear path to getting our hurdle rate returns. Now you have to be competitive, but the good news is you don’t always have to be the highest price,” he commented.
He said with his firm’s track record of buying more than 40 “terrific companies”, Ryan Specialty has to be “in the zip code” on price, but “people are careful about who they sell to”.
“Most of the companies we have bought, the people want to stay in the business … but they want a larger platform and they want to have the opportunity to be modern and current in technology and to reach into this wider array of potential retail brokerage opportunities,” said the executive.
Ryan added that while cost synergies are considered to buy down the multiple, the real synergies have come in revenue opportunities, with Ryan Specialty able to get “really high productivity increases” from its acquisitions.
Click below to watch our full exclusive Leading Voices interview with Pat Ryan…