COVID-19 Impact on Private Equity
Private equity markets, especially in the last decade, have flooded the insurance buyer space. But COVID-19 has put a large question mark on purchases made in the next 12 months. Global buyout transactions fell 60% from January to April and are trending at a third of the five-year monthly average.
Another uncertainty is the capacity of the market, as many private equity firms refinanced their debt stack in the last year. When the pandemic hit, buyers had to figure out how to stretch their capital until the stimulus allowed the federal reserve to become a buyer. While larger firms may help bring in higher multiples, the concern remains of smaller firms seeking the right valuation in the coming 12 months.
COVID-19 has also placed a burden on private equity resources, depending on location, infrastructure, and cash flow.
Because private equity ownership is built to be short-term, many firms may not have contingency plans to handle COVID. They may not have the HR expertise and resources required to handle COVID response from their portfolio companies and their employees.
There could be impacts to obtaining materials and adhering to new state and federal compliance measures. In response, PE firms may more closely track costs and potential losses should customers be unable to meet profitability goals.
As many companies struggle with working remotely, technology becomes another concern. Many companies are seeing social engineering threats, and cybersecurity could pose a major threat to companies already struggling to achieve revenues of the prior year.
Franchising Your Independent Insurance Agency as an Alternative
An alternative to private equity acquisition is of course franchising. But not all franchising structures are the same. With Keystone, an insurance agency becomes a partner of a community, while maintaining their agency name, ownership structure, and independence. Partnership brings a wealth of resources that pay for any franchising fees. At the same time, they minimize the mandates that come with an acquisition, such as re-branding, staffing, or technology changes. These resources can help you hire a new producer, secure a large account in a new niche, better manage your sales pipeline, and enhance your clients’ risk and safety programs.
In fact, many of our partners state that just one experience working with our support has paid for their franchise fees for a full year!
If you are interested in learning what a Keystone partnership can do for your agency, click on the Join Us section and fill out your interest today.