The rollout of the new administration’s long-anticipated tariffs has been somewhat chaotic, creating significant market confusion. The stock market has been in a free fall for a month, and the financial press has consistently stoked fears of a resulting recession, or worse. Will tariffs affect the insurance M&A market, and if so, what does this mean for insurance agencies looking to sell?
At Springtree Group, our job is to understand the risk for buyers and sellers and navigate both internal and external factors impacting the valuation of your agency. Today we’ll discuss why we firmly believe the M&A market is built to withstand these current conditions.
Private Equity Backing Is Less Volatile
A sizable portion of the activity in the insurance M&A market is handled by insurance brokers backed by private equity. As a starting point, this creates a safety net around the value of your insurance agency and the financing available to close deals. In fact, most of the panic you’re seeing in the press reflects the massive sell-off of publicly traded stocks as investors try to get ahead of compounding issues like layoffs, declining sales, and supply chain disruptions. Not only is the insurance industry largely immune to these issues, but private investors are typically less likely to be as reactive as their public counterparts. Also, the majority of the insurance agency market is located in the United States, so import tariffs have little effect on this piece of the market.
The SOFR Yield Is Set to Decline
Secretary of the Treasury Scott Bessent has set the goal of bringing the 10-Year Treasury Note down from 4.6% to 3%, which would require a massive reduction in inflation. The insurance M&A market already enjoys some insulation from the 10-Year Treasury yield, with borrowing rates reflecting the SOFR, which typically falls below the Treasury yield, instead of the Treasury yield itself. Assuming the 10-Year Treasury Note declines as planned, the SOFR should follow suit, reducing borrowing rates and increasing the purchasing power of insurance brokers. Given that current multiples are unsustainably high at the current borrowing rate, any drop in interest will stave off a bearish M&A market.
Any Shift in Inflation Has Its Pros and Cons for M&A
Be wary of any messaging urging you to believe President Trump’s tariffs will doubtlessly garner a single, fixed result for the insurance industry. Whether the tariffs lead to higher inflation, deflation, or even stagflation, the results will likely be mixed and variable, but not insurmountable. For example, deflation tends to result in lower premiums, which may impact your overall valuation. At the same time, deflation also tends to push the Fed to reduce low term interest rates like the SOFR, freeing up the buying power of insurance brokers.
Selling your insurance agency during a period of economic volatility can create a lot of anxiety. Springtree Group is here to mitigate external influences, mediate negotiations between high-value buyers and sellers, and maximize your profits. Contact us for an accurate agency valuation, and we’ll develop a strategy to sell your agency on a timeline that works for you.
