Halsband: MGA valuations and M&A activity not a “bubble”

M&A activity in the MGA space is not indicative of a valuation “bubble”, according to McDermott Will & Emery partner Michael Halsband, and instead reflects sustainable growth that is likely to continue.

Speaking to The Insurer TV on the sidelines of the recent Program Manager Conference after moderating a panel on "M&A, Capital and Capacity", Halsband said that current MGA multiples and levels of M&A activity “are absolutely sustainable”.

“And if you were to say it was a bubble, it's one hell of a bubble,” he added.

“The key takeaway from the panel, first and foremost, was the positive outlook and the anticipation of what the next 12-18 months hold for M&A in the program space,” said Halsband.

The program space has been a bright spot within a wider insurance sector that has generally seen reduced M&A activity since its peak during the post-Covid era.

“I did not think that post Covid and up until ’23, we would continue to see such an expansive M&A market [in the program space].

“Again, surprising to me are the valuations that continue to be sustained. In some instances, these are structured valuations on the sell side, with MGAs fetching a base multiple return of 8 to 12, and earnouts going as high as 10 to 14,” said Halsband.

He went on to dismiss suggestions that such valuations represent a bubble, emphasising that current valuation levels have been consistent for a considerable time.

“Valuations have been in that double-digit range, perhaps on the lower end, for as long as I can recall,” said Halsband.

He noted that MGAs have many unique characteristics that are driving M&A activity and valuations in the space, including their ability to leverage technological advancements.

“Tech-enabled underwriting is utterly critical to the differentiation factor for MGAs.

“If you are a tech-enabled writer of wildfire or tech-enabled writer of other cat exposures such as earthquake … there is going to be truly accretive value in such an enterprise,” said Halsband.

Halsband’s comments echo those of Lexicon Associates partner William Pitt, who in a keynote speech at the Program Manager Conference highlighted how MGAs' nimbleness allows them to pivot quickly using technology, which is an advantage in an increasingly volatile insurance landscape.

Watch the full 13-minute interview to hear more about:

  • What the MGA deal flow for 2024 is looking like
  • How the smart money is changing the way it behaves in the program space
  • The kind of deals that McDermott Will & Emery specialise in