Rising acquisition multiples are making it more difficult for locally listed brokers to complete deals that add value, a Macquarie Equity Research report says.

The mergers and acquisitions pipeline has been a major contributor to earnings-per-share growth for the listed brokers, but interest in the local market from international rivals has increased competition and is helping to push up multiples for targets.

“Although many M&A opportunities remain in Australia, volume-wise, we believe there is limited accretion for Australian listed brokers with acquisition multiples at these levels,” the report says.

Steadfast has experienced its own forward earnings before interest, tax, depreciation and amortisation multiple converging with those paid for private acquisitions, making Australian insurance broking M&A less attractive, “hence the rotation into underwriting agencies and offshore markets”.

Macquarie insurance analyst Andrew Buncombe says the internationals benefit from having higher multiples themselves and currency advantages, plus their global market positions.

“Particularly for these medium to large ... brokers that they’re buying, they’re plugging them in to fill holes they currently have, with the intention to give them a global footprint to help grow,” he told insuranceNEWS.com.au.

Steadfast, PSC Insurance Group and Arthur J Gallagher have driven mergers and acquisitions in the Australian market for the past decade, while new entrants have led competition more recently, the report says.

Coverforce was active before being acquired by Steadfast, as was Honan before it was taken over by Marsh, while private equity-backed BMS and Envest both stepped up in fiscal 2022 and Howden and Lockton have featured.

Global brokers have tapped capital from the Middle East, pension funds have shown interest in broking, and in the case of Arthur J Gallagher tax credits have boosted funds available for transactions.

Macquarie has also examined the size of M&A teams since 2020, looking across 12 brokers.

It found 32 full-time equivalents are currently dedicated to M&A in Australia, compared with 17 in 2020. Six of the 12 brokers have dedicated staff in Australia, while others allocate executives’ time on an ad-hoc basis. Three brokers with M&A aspirations that did not have a presence locally in 2020 have established one now.

“We started to do that survey because we thought it was the best lead indicator for how much pressure there was going to be on acquisition multiples,” Mr Buncombe said. “If there’s more people looking for things, then by definition the multiples should go up.”