M & A Outlook for 2021
Q: According to MarshBerry (https://blog.marshberry.com/weather-the-storm), valuations are up slightly from 2019 levels but have been basically flat throughout 2020. How does their report compare to what you have been seeing in the marketplace?
A: I see valuations at an extremely high level if the book of business is not in specialty markets that are adversely affected by COVID. An example of these markets are outdoor intermural events insurance and small independent restaurants in hotspot COVID areas. These books need to ride out the storm.
Q: What has been the financial quality of the agencies you've seen go on the market this year, in terms of the balance sheet, cash flow, profitability, and mixes of business? Has the pandemic and recession impacted the prices that top-quality agencies can attract?
A: So far, I have seen minimal impact on agencies with well-rounded books. It has been the opposite; everyone seems to be busier than ever!
Q: The shutdowns necessitated by the pandemic have produced a severe recession. On the other hand, interest rates are extremely low and are likely to stay there for the foreseeable future. All things being equal, the recession should depress the selling price of assets, while low-interest rates should increase them. What do you think the net effect of these forces will be, and why?
A: I have preached in the past that low-interest rates equal higher valuations, I believe that to be the same in the current environment.
Q: Private equity firms have been significant players in the acquisitions market for the last few years - MarshBerry reported that private equity-backed brokers were the buyers in 60% of announced transactions in 2019. Has that trend continued? Why?
A: I don’t believe that there is a correlation as many deals (if not most) are confidential. I have never reported a name of a seller or buyer and we are responsible for 350+ closings over the past decade!
Q: How have lenders reacted to the economic upheaval of 2020? Would you say they are more inclined to lend for agency acquisitions, more reluctant, or has their attitude been unchanged?
A: The lenders are eager to lend to good borrowers and for good acquisitions! This has been normal and will continue as such!
Q: Is this a good time for well-prepared agencies to sell?
A: It is a good time to sell, it has been a good time to sell for the past few years and I don’t really see that changing anytime soon!
Interview of Marc Greene by Tim Dodge.