Who Are You Really Joining? The Hidden Risks in Insurance M&A

In the insurance industry, true M&A success isn’t about completing acquisitions; it’s about Culture, Integration, and building long-term organic growth that ensures independence and lasting value

There is a sea of change taking place in the insurance industry relative to consolidation. It is an issue I think about every day as a “player and coach” on a team involved with M&A for OneDigital… a team with the core task of differentiating us in a very crowded space. The insurance vertical is very attractive to investors and has been for decades. The space is crowded with firms that can tell a great story; recurring revenue models and strong retention dynamics create very appealing investment attributes; and for a long time, very low interest rates allowed pretty much every player to do well enough to continue to control their own destiny.

With headlines about firms completing acquisitions coming at a fast and furious pace, we've found that raising capital and writing checks isn’t the hard part. It’s what happens after the acquisition that defines long-term success. The true long-term health of the firm join is defined by the vibrancy of its culture and its ability to grow organically… not by how many acquisitions it completes.

When I suggest there is a sea change taking place, think about the following. In a relatively short period of time NFP rolled into Aon, Assured Partners into Gallagher, and now it is openly rumored Risk Strategies will roll into Howden. In effect, somewhere between 1,000-1,500 acquisitions that joined these PE-backed firms are now part of or about to be part of a larger strategic entity. Let me ask a simple question. How many people that chose to join NFP wanted to end up at Aon? How many teams who chose Assured Partners wanted to go to Gallagher? I ask to provoke one thing: Agencies selling to PE-backed firms need to dig deeper to understand a firm's longevity!

I can tell you that most PE-backed firms have not focused on making the investments necessary to remain independent and continue to trade from one PE firm to a bigger PE firm. And with interest rates and prices in the marketplace being what they are, there is very little capital left over to focus on culture building and investments to grow organically. This is where I think about some of the benefits of building here at OneDigital over the past 25 years… not the past 5 or 10. Incremental investments in technology and talent over decades to build a broadly diversified set of businesses creates a competitive advantage in one important way… we earned the right to control our own destiny… not be told by others what is going to happen next and not to get rolled into a strategic buyer out of necessity or some incremental short term financial gain.

If you want to join a leadership team that is building a vibrant culture and investing where necessary to grow organically, you must dig deeper than a banker’s spreadsheet. Ask about a firm’s ten-year plan. Ask how firms are growing organically, not acquisitively. Ask about a firm’s ability to remain independent… and their track record of trading PE to PE. There are stunning differences below the surface that can only be built with a longer-term lens. By understanding the structural issues supporting longevity, you will better understand the actual firm you are joining.

Read the full series from Mike and Connect with him on LinkedIn, here. To hear more from leaders who joined OneDigital through acquisition, visit the Why OneDigital Hub.

About OneDigital

OneDigital’s team of fierce advocates helps businesses and individuals achieve their aspirations of health, success and financial security. Our insurance, financial services and HR platform provides personalized, tech-enabled solutions for a contemporary work-life experience. Nationally recognized for our culture of caring, OneDigital’s teams enable employers and individuals to do their best work and live their best lives. More than 100,000 employers and millions of individuals rely on our teams for counsel and access to fully integrated worksite products and services and the retirement and wealth management advice provided through OneDigital Investment Advisors. Founded in 2000 and headquartered in Atlanta, OneDigital maintains offices in most major markets across the nation. For more information, visit onedigital.com.