Wave of M&A continues to reshape Employee Benefits list

The company in the No. 14 spot on the Crain’s Employee Benefit Services Firms list demonstrates two big trends.

First, the wave of consolidation that has reshaped the industry — and our list — over the past several years isn’t over yet.

For instance, Definiti LLC, one of many private equity-backed companies rolling up employee benefits companies across the nation, made the list at No. 25 for the first time last year after acquiring Brewster & Brewster of Painesville in early 2021.

Then, a year later, the retirement services firm acquired Noble-Davis Consulting of Solon. That deal that pushed Definiti based in The Woodlands, Texas, up to the No. 14 spot on the list, which is ranked by full-time employees who design, administer and sell employee benefit programs in Northeast Ohio.

Other companies on the list have been in acquisition mode, too. Take Chicago-based Gallagher, which acquired Stellar Benefits Group of Solon in June 2021. Last year, Gallagher (No. 5 on the list) acquired 24 North American brokerages providing either property and casualty or employee benefits insurance, according to a report on 2021 brokerage acquisitions published by Optis Partners, a Chicago investment banking and financial advisory firm.

Optis Partners counted 1,034 North American insurance brokerage acquisitions in 2021, up 30% from 2020, which was already a record year. Granted, most of the acquired agencies don’t focus on employee benefits, but the benefits industry is a “material factor” in the trend, said Steven Germundson of Optis Partners. He said 27% of the brokerages acquired so far this year do at least some work in the benefits space.

What’s driving the trend? Retiring owners, well-funded investors and fears that the capital gains tax might go up, the report stated. However, the first quarter of 2022 was the slowest first quarter by M&A deal volume since 2016, a follow-up report stated.

Though Gallagher is publicly traded, most buyers are private equity backed. Among them is Unison Risk Advisors, the Cleveland-based parent of Oswald Cos., which is always No. 1 on this list. Canadian private equity firm Peloton Capital Management in March acquired about 30% of Unison Risk Advisors. Capital from that deal will help the company pursue more mergers and acquisitions, the company told Crain’s this spring.

Though just over half of the 32 companies on the full digital list are based locally, at least six of them have acquired their way into Northeast Ohio since 2019, according to a Crain’s analysis. Among them is Risk Strategies of Boston, which announced on July 7 that it had acquired the No. 2 company on the list, Selman & Co., through a subsidiary called One80 Intermediaries. In 2019 Risk Strategies also bought Zito Insurance Agency (No. 32 on the full digital list).

Those six companies also include Definiti, which also acquired offices in Pittsburgh and Erie, Pa., about two years ago.