8. Mergers and acquisitions

10 Years, 10 Catalysts of Change in Benefits

Just how big an impact have mergers and acquisitions made in the employee benefits space?

In a word: huge.

Doubters can look at the moves firms Arthur J. Gallagher & Co, Brown & Brown and Marsh & McLennan have made over just the past few years. They’ve been gobbling up smaller brokerage firms at a record pace.

“I would almost liken it to what happened with banks, where in 1989 there were some 16,000 banks. Now we have less than half that,” explains Mark Eissman, global sector head of financial services for Mergermarket.

The past decade has seen a “very significant” impact on M&As in the employee benefits space, Eissman says.

Among the implications? A more competitive landscape, for one. Smaller brokerage firms might be most at risk for survival. But the changes also are pushing them to adopt new ways of doing business, which could be an advantage in the long-run.

M&As also affect relationships between employers and brokers—but whether that’s good or bad depends on a case-by-case basis.

Insurance-agency mergers and acquisitions hit an all-time high in 2012, with 291 transactions in the United States and Canada, according to OPTIS Partners, an investment-banking and financial-consulting firm.

But the biggest impact might be yet to come. Some experts predict the next few years will see an even bigger boom of M&A activity in the market.

“It was so fragmented and remains so fragmented that I think a lot is yet to come,” Eissman says.

That’s in part because of continuing increased regulation in the benefits space, which has been spurring consolidation.

Then of course, there’s the Patient Protection and Affordable Care Act, which is changing the game in many ways. Some firms have felt the need to affiliate with a buyer offering significant added value and other resources to compete in the changing marketplace in the wake of health reform.

Consolidation can help alleviate some pressure felt by economic and regulatory factors, so expect deal-making to continue, not subside.

“I think that confluence of factors will likely accelerate and magnify what has been happening in terms of M&As,” Eissman says.

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