TAG’s Nigro: “I’m not worried about 15x MGA valuations, I worry my clients will miss out”

MGAs are delivering returns that justify the high multiples achieved in recent transactions, according to Steven Nigro, managing partner at TAG Financial Institutions Group.

Speaking to The Insurer TV, Nigro noted that the level of growth at MGAs still justified investing even with valuations at double-digit multiples of Ebitda.

“People are making the return with MGAs that they need to make,” Nigro said. “I'm concerned more about the laggards – the ones that really want to be in this business but can't accept the double-digit Ebitda number. They'll eventually get there and realise that the returns will be there.”

Nigro was a participant in the "M&A, Capital and Capacity" panel at the recent Program Manager Conference, where high multiples were a key discussion point.

“It was a good point made in the panel that a 15x Ebitda multiple is no longer absurd,” Nigro said, adding that these valuations were in line with the high level of Ebitda growth that MGAs can now achieve.

“We've done two or three MGA start-ups that went from zero to $10mn to $20mn of Ebitda.

“You can still buy [and] make a return, especially in the commission on the feedback side of the business,” he said.

These valuations far exceed those of most traditional US carriers with proven track records. For instance, Chubb’s enterprise value, calculated as a multiple of Ebitda, has hovered around 12.5, while Markel has averaged 5.7 this year.

Solving talent woes

During the interview Nigro also highlighted how MGAs have a proven ability to attract top-level talent.

“MGAs now have access to technology and data, which used to be just for the carriers,” he said.

Nigro said traditional carriers were now lagging behind MGAs in attracting top talent.

“I see that talent come into the MGA space. That's good news. I think we've got to replenish it on the carrier side.”

The ability of MGAs to attract talent was another issue highlighted at the Program Manager Conference, with Lexicon Associates partner William Pitt also using it as the focus for a recent analysis in The Insurer’s Undercurrents series.

Watch the full 19-minute interview to hear more about:

  • The micro drivers of MGA M&A
  • How an A- rating doesn't mean what it used to do
  • How risk transfer structures are evolving