Marshberry’s Bucur: 'Through the roof' M&A valuations driving focus on incubation strategies in specialty distribution

By David Bull

May 29 - (The Insurer) - Specialty distribution platforms including MGAs and MGUs are continuing to place a strong emphasis on incubation to drive organic growth as they face an M&A environment where valuations are “through the roof” because of robust demand and a lack of supply, according to MarshBerry’s George Bucur.

Speaking at the Program Manager Conference 2025 in New York Thursday morning, the MarshBerry managing director noted that after specialty distributor M&A spiked in 2021 with 179 transactions, deal volume stayed high in 2022 and 2023 at 175 and 181 respectively.

This contrasted with transaction activity in the retail distribution space, which dropped off by 30% over those two years.

“But because of the massive amount of consolidation that we’ve seen in those last three years and before and after, there’s a lack of supply,” said Bucur, who noted that MarshBerry tracked only 120 transactions involving specialty firms last year.

For the first time, there were also less P&C transactions than in life and health, with only 58 deals announced last year.

“That’s relevant, because there are probably about 65 to 70 buyers of specialty P&C firms in the marketplace. There’s not enough to go around as a result of that supply (and) demand.

“Demand remains very robust. There’s a lot of capital that needs to be put to work. There is a lack of sellers and that’s impacting valuations,” he commented.

Bucur also highlighted the higher consolidation rate in specialty, which was 7.1% in 2024, with the segment consolidating at a rate of 2.8x retail brokers.

“You can see there is a very much stronger preference for specialty organisations, the niches they bring, the value proposition, and their ability to grow, compared to that of the retail organisations.

“Part of what’s influencing valuations is the secret is out. The public markets, private equity, people love insurance distribution, they love the stickiness, they love the recurring revenue, they love the margins, the growth potential,” he continued.

He noted the continual incline of EBITDA multiples offered to public companies, which is a driver of the valuations in the M&A seen in the specialty distribution space.

In his presentation, he showed that potential valuations for specialty firms across P&C and health had increased by 60% between 2020 and 2024, with the median up 35% during the same period.

INCUBATION STRATEGIES

Bucur highlighted the rising prevalence of incubation strategies employed by specialty distribution platforms in recent years as a means of driving organic growth, and the growing importance of this approach against a backdrop of M&A dynamics.

While only a few organisations such as K2 Insurance Services, Euclid and NSM had this concept as a primary practice five years ago, today all of the estimated 28 companies that are distributors of $1 billion or more premium are using incubation as a strategy.

The approach involves attracting underwriting talent, providing back office infrastructure and allowing them to grow and tap into their “entrepreneurial spirits”, he observed.

“Why is this happening? From the underwriter perspective, this is a way for me to capture value that I am creating, versus if I’m in a large organisation where I may not be able to realise that value. It allows me to, in a safe environment, tap into my entrepreneurial spirit and build a book of business,” he said.

From the specialty distribution platform’s perspective it allows them to be more particular about where they want to make their bets by investing in specific underwriters, bringing them in and giving them a home, Bucur suggested.

“Oh, and by the way, it’s less of a risk to my culture, because I can influence the culture of a smaller group of individuals, or an individual, versus an acquisition which is largely going to have a culture that is already implemented.

“And frankly, with an M&A environment where valuations are through the roof, it’s a lot easier for those organizations to run an incubation strategy, versus having to pay high valuations from a historical basis,” said the MarshBerry managing director.