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Private equity roll-up model faces pressure in US insurance distribution
American Growth Insurance CEO Brian Morgan said rising agency valuations are also squeezing deal economics for traditional PE aggregators.
Insurance agency owners are asking more than valuation multiples from private equity buyers, with principals increasingly focused on whether a transaction can strengthen the business over the long term, Insurance Business reports. American Growth Insurance CEO Brian Morgan said the classic PE approach of buying agencies, centralizing functions like finance and HR, and then reselling a larger platform is becoming less compelling to sellers.
Morgan also argued that the economics of the roll-up strategy have shifted because agency valuations have risen. He said the return potential from simply combining smaller agencies is less attractive versus current agency multiples, reducing value-creation opportunities for many PE funds.
At the same time, Morgan said seller expectations are rising beyond back-office integration, with buyers needing to differentiate their technology, recruitment capabilities, technical expertise, sales infrastructure, and operating model. He added that this higher bar reflects both changes in the PE market and changes in agencies' mindset as consolidation continues to reshape US insurance distribution.
AGI is building what it calls a different model, combining insurance operators with backing from Rockbridge Growth Equity and venture capital firm Atomic. Insurance Business reports that AGI completed its first acquisition this month, buying Baltimore-based Heller-Kowitz Insurance Advisors.