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18 January 2023

M&A: A look into 2023 and beyond

Last year may not have hit the heady hits of 2021 when it comes to M&A activity in UKGI, but it wasn’t what you would call quiet.

Acquisition and consolidation continue to be key features in the UK broking landscape, and despite the challenging economic landscape we do not expect this to change any time soon – even if the players behind these acquisitions do.

There were a number of active players in the market last year, with the likes of GRP, Aston Lark, JMG Group, Jensten Group, Clear Group and Acrisure all completing a sizeable number of deals over the last 12 months.

Of course, the level of acquisition seen in the market over recent years does mean that quality targets are not necessarily rare, but they are becoming rarer.

This means that acquisitive firms need to work harder and smarter in order to find the best targets.

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The traditional broking consolidators are also facing competition from a new wave of consolidators looking to grow quickly by acquisition. The likes of JMG Group have already made it clear they want to make a solid play in the consolidator space.

Group managing director Jake Fox told Insurance Times in February 2022 that the firm was looking “to acquire pretty much everything and anything” as it aimed to be a consolidator of choice to support its target of doubling gross written premium over the next five years.

And then there is external capital.

Private equity continues to see the UK broking market as an area for growth and solid returns, with several firms expecting the MGA market to soon become another key market for these investors.

Speaking on our future of broking webinar in May 2022, Julyfourth Services owner and Insurance DataLab Advisory Board member Andy Fairchild described UK brokers as a “safe haven” for such capital due to the “cash generative” and “resilient” nature of insurance broking – something that is particularly appealing in the current economic landscape where uncertainty clouds the horizon.

“If you’re looking to deploy capital, looking at insurance broking in the UK might be an obvious place to go,” he said. “[Insurance brokers] have been pretty resilient over the last two or three years and have been pretty resilient to macroeconomic shocks in the past – and it looks like there are some more coming over the next few years.”

Profitability Persists Despite Challenges

And Insurance DataLab’s own analysis of broker financial results shows just how resilient these broking firms have been.

While growth in revenues may have slowed in recent years, dropping from 5% in 2020 to 4% in 2021, profitability has been on the increase – rising from an average profit margin of 15% in 2019 to 20% in 2021 – despite facing a global pandemic and the subsequent economic turndown.

But of course, in the current regulatory landscape it is not only financial results that matter when it comes to assessing the likelihood of future success.

With Consumer Duty and Fair Value increasing the regulatory spotlight on good customer outcomes, customer feedback, complaints handling and the overall customer experience are becoming increasingly important.

So as we move through 2023, broking consolidators – both the traditional and the new – and external investors must take a holistic look at the acquisition targets they are setting in their crosshairs.

And it is here that Insurance DataLab can help.

Not only do we have a comprehensive financial view of more than 250 of the UK’s leading broking firms by way of detailed P&L and balance sheet insights and our proprietary Broker Performance Ratings, we have also mapped the market to show ownership structures across the industry as well as which product lines each individual firm operates in.

Add to that our detailed insight and analysis of complaints handling figures from both the Financial Ombudsman Service and the FCA, as well as customer experience data from the likes of Consumer Intelligence, Fairer Finance and Insurance Times, and you have the most comprehensive view of broker performance available in the market.

Find out how Insurance DataLab can help your business find its next acquisition target by taking advantage of our free 7 day trial

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