What Drives Agency Valuations in Today’s Private Equity Landscape
The insurance brokerage industry has undergone a fundamental transformation over the past decade. Private equity capital has flooded the space, creating approximately 45 institutional buyers actively consolidating the fragmented landscape of about 35,000 independent agencies. For agency owners navigating this market, whether considering a sale, planning succession, or simply understanding their competitive position, grasping what drives valuations has never been more critical.
In a recent conversation between IA Valuations and industry experts, leaders from BHMS Investments, Tropolis Insurance, and OneDigital shared insights into how private equity-backed platforms evaluate agencies and what factors command premium multiples in today’s market.
Why Private Equity Targets Insurance Agencies
The insurance brokerage space possesses characteristics that institutional investors find irresistible. The business model generates recurring revenue through annual policy renewals, operates with high profit margins, and proves remarkably resilient during economic downturns. The fragmented nature of the market, with thousands of independent agencies, presents clear consolidation opportunities.
Jeff Michael, a principal at BHMS Investments, who has built four separate top-100 insurance brokerages over the past 15 years, explained the fundamentals: “At a high level, the insurance brokerage space is very defensible. It’s a durable business with recurring cash flows, it’s regulated, and it’s fairly counter-cyclical.”
Beyond the attractive business fundamentals, the sheer amount of capital seeking deployment in private equity funds, which is currently estimated at $2.6 trillion in “dry powder,” creates intense competition for quality agencies. This competition has driven higher valuation – what it took to be the 100th largest broker has increased from $13.8 million in revenue in 2020 to $18 million in 2024. Even more dramatically, the threshold for the 10th largest brokerage jumped $300 million over just five years. This growth is achievable only through aggressive acquisition.
The Core Drivers of Agency Value
When private equity-backed platforms evaluate potential partners, they assess both quantitative metrics and qualitative factors that will determine long-term success.
Size and Scale
Larger agencies command higher valuations, plain and simple. Scale brings negotiating power with carriers for better contingencies and commissions, enables investment in technology and specialized talent, and provides the revenue base to support sophisticated operations. The market clearly rewards size, as evidenced by the concentration happening at both ends of the industry barbell: mega-agencies growing through serial acquisitions, while small agencies continue regenerating at the grassroots level.
Line of Business Mix
Commercial lines businesses fetch premium multiples compared to personal lines. The reasoning centers on defensibility and disruption risk. While consumers may eventually purchase home and auto insurance entirely through mobile apps, commercial lines will likely always require consultative selling, complex risk assessment, and ongoing account management. Michael noted that commercial lines agencies command higher valuations because “commercial lines will always require more hands-on, higher touch, and talking to a producer that can educate the client.”
Employee benefits, group health, and specialized lines, like surety or non-standard auto, each carry their own valuation dynamics. Agencies with diversified revenue across multiple product lines often receive favorable treatment, as they present less concentration risk.
Niche Specialization
Agencies that have built deep expertise in specific industries or risk classes create particularly defensible businesses. Whether it’s hospitality, construction, healthcare, or manufacturing, vertical specialization allows agencies to develop proprietary knowledge, specialized carrier relationships, and pricing power that generalist competitors can’t easily replicate. This specialization translates directly into higher multiples.
Leadership and Team Strength
The quality, depth, and tenure of an agency’s leadership team significantly impacts valuation. Buyers assess whether key producers are likely to remain post-transaction, how dependent the business is on the owner, and whether the management team can scale operations as the agency grows. Strong second-tier leadership that can operate independently commands premium valuations.
Geography and Market Position
Location matters, though perhaps less than it once did. Agencies in growing metropolitan markets or regions where a buyer seeks density may receive favorable treatment. Market position, whether measured by revenue rank, carrier relationships, or brand recognition, also factors into valuation discussions.
The People-First Philosophy
Despite the financial engineering and spreadsheet analysis inherent in private equity, successful acquirers consistently emphasize cultural fit and relationship quality above pure metrics.
Jeff Yamin from OneDigital, which recently completed a recapitalization after 25 years in the market, described their approach: “For us, it’s been a people approach, and that’s where we start, and that’s where we finish. If we can’t get that part of it right, it’s not going to make a lot of sense for us, or for the seller”
The people-first philosophy extends beyond initial compatibility. OneDigital reports that over 90% of their acquisition conversations now originate from within their own organization – team members identifying agencies in their local markets that would make good partners. This organic deal flow provides built-in cultural validation and smoother integration.
Jeff Mason, CEO of Tropolis Insurance, referenced what Integrity Marketing Group founder Brian Adams calls the “campfire test,” essentially asking whether you could comfortably sit across a campfire from your potential partners for hours. Given that most partnerships involve ongoing equity participation and multi-year commitments, cultural alignment proves as important as financial terms.
Integration: The New Competitive Advantage
The conversation revealed a fundamental shift in consolidation strategy over the past decade. Early private equity-backed roll-ups focused primarily on aggregating agencies while allowing them to operate independently. This “holding company” model created portfolios of hundreds of disparately-held agencies on different systems with minimal operational integration.
That approach no longer works.
Agencies and platforms that have prioritized true integration, consolidating onto single agency management systems, standardizing processes, centralizing back-office functions, and building unified cultures, now command premium valuations. Those that haven’t integrated face costly remediation efforts or valuation discounts.
Michael emphasized how the market has evolved: “In 2011, people weren’t thinking about integration at the forefront of their mind. I would say probably 6, maybe 7, years ago, that dynamic changed. There are people paying the price today that are continuing to try and integrate after they’ve acquired dozens, if not hundreds, of agencies.”
At least two of BHMS portfolio companies operate as fully integrated models on single versions of their agency management systems. This enables data-driven decision-making, efficient back-office operations, and the scale benefits that justify premium multiples.
Integration extends beyond technology. It encompasses HR management, training programs, carrier relationships, marketing resources, and administrative support. The goal is to create genuine operating leverage where the whole exceeds the sum of the parts – or as Yamin put it, ensuring that “1 plus 1 equals 4.”
For independent agencies considering acquisitions of their own, the integration imperative holds actual weight. Agencies that successfully integrate their acquisitions onto unified systems with clean data build more valuable, scalable businesses. Those that accumulate disparate “bolt-ons” without integration find themselves stuck at a valuation plateau.
The Changing Rate Environment
Interest rates have profoundly impacted private equity returns and, consequently, valuation dynamics. When rates hovered near zero, cheap debt made leverage buyouts easier to execute and financial engineering could cover operational shortcomings. At 4% rates, operational excellence and genuine integration matter far more.
Yamin referenced Warren Buffett’s famous observation: “When the tide goes out, you sort of see who’s been swimming naked. That seems to be playing out in the market today.” Platforms that focused on financial aggregation rather than operational integration now struggle to demonstrate the returns their investors expected.
Practical Guidance for Agency Owners
For independent agency owners considering their options, whether contemplating a sale, evaluating internal succession, or simply understanding their market position, the experts offered clear guidance.
Do Your Homework
With 45 institutional buyers in the market offering different structures, equity arrangements, and integration philosophies, cutting through the noise requires deliberate effort. Michael emphasized: “This is probably one of the most impactful decisions you will ever make. You spend decades building something, you want to make sure you’re partnering with the right group.”
Talk to Portfolio Agencies
The single best way to understand what life looks like after a transaction is speaking with agencies that have already joined a platform. Yamin was direct: “If that firm or those firms aren’t willing to provide those folks for you to talk to, then that might be all you need to know about that decision.”
Don’t Be Rushed
Artificial deadlines and pressure tactics should raise red flags. Mason advised: “Don’t let them rush you. Just take the time that you need, be patient. They have to be patient.”
Understand Your Value Drivers
Agencies considering a transaction should honestly assess their position across the key value drivers: size, line of business mix, specialization, leadership depth, and integration quality. Understanding where you excel and where you have gaps enables realistic expectations and better negotiations.
Consider All Options
Private equity partnership represents one path among several. Internal succession, selling to employees, merging with a peer agency, or remaining independent all remain viable strategies. The right choice depends on individual circumstances, goals, and the specific agency’s characteristics.
Looking Forward
Despite significant consolidation, the independent agency system remains remarkably healthy. While mega-agencies dominate headlines and acquisition counts, 27% of agencies still generate less than $150,000 in revenue, and new agencies continue launching. The market regenerates even as it consolidates.
For agency owners, understanding what drives valuations in today’s private equity-influenced market provides strategic clarity, whether planning an exit or building for the long term. The agencies commanding premium multiples share common characteristics: commercial lines focus, specialized expertise, strong leadership, and increasingly, genuine operational integration.
The three experts concluded with consensus that private equity, when executed properly, benefits the industry by bringing capital, resources, and operational sophistication to independent agencies. The key qualifier “executed properly” underscores that not all platforms or partnerships are created equal. Due diligence, cultural alignment, and a clear understanding of value drivers separate successful transitions from disappointing ones.
Jarod Steed and Craig Niess from the IA Valuations team facilitated this conversation with Jeff Michael (BMHS Investments), Jeff Mason (Tropolis Insurance), and Jeff Yamin (OneDigital). For questions about agency valuations or exit planning, contact the IA Valuations team at contact@iavaluations.com.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 270 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.
The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.
This article is based on a conversation between experts on our live webinar, Private Equity in the Independent Agency System. You can watch that webinar recording, and others, here.
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