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Smythe LLP will soon be publishing our 2017 Property & Casualty (P&C) brokerage benchmark report. This year’s report will be ready for distribution in May and focuses on our observations of financial changes in the industry, along with benchmarking data related to financial performance of approximately 120 brokerages throughout Canada.
Most owners are aware that the valuation of brokerages is at an all-time high. In fact, it has been our experience that transaction prices have increased approximately 15% in the past twelve months alone. There are several factors that are driving the market exuberance, including low cost of borrowing, insurance companies entering the marketplace in increasing numbers and a mature market with little opportunity for organic growth. It is our view that these high valuations can only be sustained if individual brokerages, as well as the industry, can maintain and/or increase profitability. The reality for most brokerages is that the opposite is happening. Small and regional brokerages are becoming less profitable as they are having a tough time finding efficiencies to offset the natural increase in wages.
Another issue to consider is the potential for significant market disruption. This can come in the form of online delivery platforms, price aggregators or even traditional brokers becoming so big and sophisticated to the point where small players can no longer compete. To clarify, we are not saying that there won’t be a place for the traditional local broker, but rather that it may impact valuations if they cannot generate the cash flow necessary to support the current pricing.
Ultimately, successful brokers must develop strategies that can defend against industry challenges, as well as take advantage of opportunities as they present themselves. Rick Bauman, founder of IC3 Consulting, has developed the 2017 Broker Strategic Fitness Challenge, an online survey tool that canvasses brokers on their views about important strategic issues along and ability to execute on them. Once completed, Rick will provide participants with aggregated data based on participant responses. We feel this data is an important component of improving financial performance for brokers across Canada. Having worked with Rick in the past, we have found his knowledge and perspective to be a very valuable tool in the work we do.
Our only involvement with this process is that Rick has agreed to share the aggregated results of the survey with us. We plan to use this information in the work we do as valuators and financial consultants.
We encourage you to participate and value your feedback.
Click here to take the 2017 Broker Strategic Fitness Challenge.
CPA, CA, CBV
Partner - Advisory Services
Mike has over 25 years of experience providing accounting and business advisory services, with a focus on the Canadian insurance industry.
CPA, CA, CBV
Alex Wong is a partner at Smythe Advisory and is focused on being a trusted business advisor to his clients.
CPA, CA, CBV
Director of Valuation Services
Paul Woodhouse focuses on providing financial advisory and litigation support services to clients.
Gagandeep specializes in M&A advisory engagements, as well as business valuations in the contexts of management buyouts and succession planning.
Arthur’s mandate is to assist Smythe clients in Western Canada in preparing for and executing business divestitures or acquisitions.