Insurance Brokers (MMC, AON, AJG, WTW, BRO)

[villainx]

1 hour ago, dwy000 said:

There wasnt anything impacting your share ownership as a normal share if I recall correctly 

 

So does this mean that the Tax Receivable Agreement and dual class share structure does mean anything?

 

 

[dwy000]

Just now, villainx said:

 

So does this mean that the Tax Receivable Agreement and dual class share structure does mean anything?

 

 

As I understand it, the TRA and dual class structure reflect what remains of the pre-IPO partnership structure. The publicly traded company owns about 70% of the partnership interests in the primary operating/holding entity as well as the managing partner.  The other 30% are the partners who did not want to convert their partnership into the publicly traded shares (probably for tax reasons) and still hold partnership interests.  They can convert into regular shares at any time or upon tranafer. 

 

Because the partnership entity is a pass thru for tax purposes the partners become personally liable for the taxes instead of the operating/holding company being liable.  The TRA equalizes it to pay the partners the tax that the corporate pays for the normal shareholders.   

 

That was always my understanding of it. As a shareholder this shouldnt affect your holding because it happens below the holding company you own.

 

But keep in mind that the market cap and ownership you see is really just the 70% that is not held by partners.  So when you see a $2bn market cap, that's just the 70% of the business thats publicly traded and not the entire, fully converted market cap.

[villainx]

Does this mean there's a dilution when they convert?  The partnership shares do have a sunset, that's the upon transfer part, right?

 

 

[dwy000]

7 minutes ago, villainx said:

Does this mean there's a dilution when they convert?  The partnership shares do have a sunset, that's the upon transfer part, right?

 

 

Not sure about the sunset but they do convert to regular a shares which you will see some of it happening in the filings each quarter/year.  Its not dilution since they are still owners just of different share classes (which have equal ownership).  

 

I should qualify im not a lawyer, I just read all the docs when I originally invested 2 years ago (dont hold it now)  

[dwy000]

Looking at the BWIN results and I dont get why it's up 10% today.

 

Yes organic revenues were up 5% but the company just isnt profitable- which is shocking for a low capital business like this. And I mean cash profitable. 

 

I'm beginning to think that short seller had a very valid point in them hiding commissions in earnout payments that are both non expenses as well flowing thru finance statement not cash flow statement. 

 

The company actually added $250m of debt thru 9 months this year (closer to $150m net of cash) and this is after adding back $50m of share based comp.  

 

The more I look at them the more happy I am to have switched over to BRO.  Congrats to holders on the 10% pop today but there are just such better, more opaque operators out there I'm happy to miss this one. 

[lnofeisone]

20 hours ago, villainx said:

 

So does this mean that the Tax Receivable Agreement and dual class share structure does mean anything?

 

 

Ryan has roughly 128M class A shares and 136M class B shares. Class B shares are not publicly traded. There is some small amount relative to total shares of class C shares that become class A after vesting. There are a lot of nuances and B holders have advantages - 10 votes per share vs 1 for A; conversion from B to A triggers a tax event; B holders get TRAs. 

 

All earnings RYAN reports takes into account all shares (though you need to be careful what aggregator you use for data because at least one incorrectly listed 128M as total share count inflating earnings). From this perspective the Up-C means nothing.

 

Tax Receivable Agreement - basically for every $1 RYAN saves on Taxes, original owners (B holders) will get $0.85. In aggregate, Ryan has around $450M or so of TRA liability. That means over the next X years they will be paying out that much to the original holders (those who today hold class B shares). 

 

[dealraker]

I bailed out of BWIN today at about a break-even.  I've done this twice.  

 

Somebody help me make sure I don't do this again LOL!

[Xerxes]

20 hours ago, dwy000 said:

But keep in mind that the market cap and ownership you see is really just the 70% that is not held by partners.  So when you see a $2bn market cap, that's just the 70% of the business thats publicly traded and not the entire, fully converted market cap.

 

I think BN and BAM had the same thing going when BAM IPOed couple of years back. 
 

The public entity BAM owner 30% of the privately held asset manager. 
 

The late 2024 re org fixed that. 

[dwy000]

34 minutes ago, Xerxes said:

 

I think BN and BAM had the same thing going when BAM IPOed couple of years back. 
 

The public entity BAM owner 30% of the privately held asset manager. 
 

The late 2024 re org fixed that. 

I completely get why they did it and why its the case - and have no issue with it. I just think it can be confusing and misleading if you are applying the wrong share count to the reported numbers (which is very easy to do with this set up). 

[lnofeisone]

21 hours ago, dwy000 said:

But keep in mind that the market cap and ownership you see is really just the 70% that is not held by partners.  So when you see a $2bn market cap, that's just the 70% of the business thats publicly traded and not the entire, fully converted market cap.

This is a mistake aggregators make. If you take the EPS number, it includes all share classes. 

[Spekulatius]

7 hours ago, lnofeisone said:

Tax Receivable Agreement - basically for every $1 RYAN saves on Taxes, original owners (B holders) will get $0.85. In aggregate, Ryan has around $450M or so of TRA liability. That means over the next X years they will be paying out that much to the original holders (those who today hold class B shares). 

While this makes theoretically sense I ran some numbers on these  arrangement and it seem to amount to a very high tax rate for C- Corp holder. For example RYAN since 2019 only generated. $1216M in EBIt cumulatively, how is this worth $450M in tax a liability. Also shouldn’t this tax liability be incurred only for the minority  holders , which means 50% of the of the EBIT should be covered by the liability. how does this amount to $450M.

 

RYAN is not alone here, I ran some numbers on a Napkin for IBKR and got similar results. I feel like with this tax receivable arrangement, C Corp shareholders get a raw deal and get screwed over , I just don’t now how exactly.

 

Anyways, no such issues with BRO, AJG and that what I own..

Edited November 6, 2025 by Spekulatius

[Marco Van Basten]

2 hours ago, Spekulatius said:

While this makes theoretically sense I ran some numbers on these  arrangement and it seem to amount to a very high tax rate for C- Corp holder. For example RYAN since 2019 only generated. $1216M in EBIt cumulatively, how is this worth $450M in tax a liability. Also shouldn’t this tax liability be incurred only for the minority  holders , which means 50% of the of the EBIT should be covered by the liability. how does this amount to $450M.

 

RYAN is not alone here, I ran some numbers on a Napkin for IBKR and got similar results. I feel like with this tax receivable arrangement, C Corp shareholders get a raw deal and get screwed over , I just don’t now how exactly.

 

Anyways, no such issues with BRO, AJG and that what I own..

So, I am not a tax expert, however, if I remember my class in taxation correctly, when the shareholder converts in this case, effectively what happens is that the company is deemed to receive a tax asset = tax rate * (market value of the shares - cost basis of the converting shareholder.)  So if I am an original investor with a cost basis = 1 cent a share and now I convert my private interest into a stock with a market price = $55, then the company can write-off $55 against its income for tax purposes over a certain period of time.  

[bizaro86]

2 hours ago, Spekulatius said:

While this makes theoretically sense I ran some numbers on these  arrangement and it seem to amount to a very high tax rate for C- Corp holder. For example RYAN since 2019 only generated. $1216M in EBIt cumulatively, how is this worth $450M in tax a liability. Also shouldn’t this tax liability be incurred only for the minority  holders , which means 50% of the of the EBIT should be covered by the liability. how does this amount to $450M.

 

RYAN is not alone here, I ran some numbers on a Napkin for IBKR and got similar results. I feel like with this tax receivable arrangement, C Corp shareholders get a raw deal and get screwed over , I just don’t now how exactly.

 

Anyways, no such issues with BRO, AJG and that what I own..

 

The way it works is that when the partners convert the public company "buys" the interests at the current price in exchange for shares, and so it gets a depreciable asset at a higher price - basically like a step up in basis. They partners get the tax saved by that. But I agree it's not an especially good deal for pubco shareholders.

 

I spent a bunch of time figuring it out in the case of IBKR and basically decided to hold my nose and buy it anyway because of business quality. That has worked out spectacularly, maybe RYAN is the same.

[lnofeisone]

31 minutes ago, Marco Van Basten said:

So, I am not a tax expert, however, if I remember my class in taxation correctly, when the shareholder converts in this case, effectively what happens is that the company is deemed to receive a tax asset = tax rate * (market value of the shares - cost basis of the converting shareholder.)  So if I am an original investor with a cost basis = 1 cent a share and now I convert my private interest into a stock with a market price = $55, then the company can write-off $55 against its income for tax purposes over a certain period of time.  

This is correct. There is one extra step. The company (A class shareholders) will pay roughly 0.85*55 for the "privilege" of writing off $55. Basically, buying shares in RYAN, you have to assume the TRA is a real cash liability. 

[Spekulatius]

8 hours ago, lnofeisone said:

This is correct. There is one extra step. The company (A class shareholders) will pay roughly 0.85*55 for the "privilege" of writing off $55. Basically, buying shares in RYAN, you have to assume the TRA is a real cash liability. 

Yes, the 85% seems to be the going rate for the percentage of cash writeoff accruing to unit holders. BWIN has the same 85%, that RYAN does.

 

Doesn’t this arrangement make units inherently more valuable than regular shares? I assume the LP owners incur a tax liability when they convert into shares and essentially the company pays 85% of their taxes.

 

It also means that net earnings are inflated as they are based on a lower tax rate.

[oscarazocar]

13 hours ago, Spekulatius said:

While this makes theoretically sense I ran some numbers on these  arrangement and it seem to amount to a very high tax rate for C- Corp holder. For example RYAN since 2019 only generated. $1216M in EBIt cumulatively, how is this worth $450M in tax a liability. Also shouldn’t this tax liability be incurred only for the minority  holders , which means 50% of the of the EBIT should be covered by the liability. how does this amount to $450M.

 

RYAN is not alone here, I ran some numbers on a Napkin for IBKR and got similar results. I feel like with this tax receivable arrangement, C Corp shareholders get a raw deal and get screwed over , I just don’t now how exactly.

 

Anyways, no such issues with BRO, AJG and that what I own..

 

The $450M you cite above isn't related to RYAN's past taxable income, it does not foot to the $1,216 EBIT they have generated.  It's the undiscounted estimated future payments related to the TRA.  Whenever a unit is converted, it creates a future tax benefit over 15 years.  TRAs are generally structured (and is so here) so that the company pays 85% of that tax benefit to the unitholder and keeps 15%.  The liability is the estimate of what the company will pay out over time related to the TRA.  C corp shareholders aren't really getting a raw deal, basically they are paying a slightly lower tax rate than they otherwise would.  You can argue over the whole structure and whether or not it's unfair that the company doesn't keep the whole benefit, but the structure has been in place for decades and is now commonly accepted.

[lnofeisone]

3 hours ago, Spekulatius said:

Yes, the 85% seems to be the going rate for the percentage of cash writeoff accruing to unit holders. BWIN has the same 85%, that RYAN does.

 

Doesn’t this arrangement make units inherently more valuable than regular shares? I assume the LP owners incur a tax liability when they convert into shares and essentially the company pays 85% of their taxes.

 

It also means that net earnings are inflated as they are based on a lower tax rate.

B shares are more valuable, but they aren't publicly traded. The true earnings are understated because of the TRA. 

[dealraker]

The brokers probably aren't yet as cheap as they look given that growth is surely slowing.   The years of faster growth are likely ended and we're probably going down about half what it was.

 

Life is great if you can stand it.  Brown and Brown has some clean accounting compared to all others and in my view may be the best investment available presently.

 

 

[Marco Van Basten]

4 minutes ago, dealraker said:

The brokers probably aren't yet as cheap as they look given that growth is surely slowing.   The years of faster growth are likely ended and we're probably going down about half what it was.

 

Life is great if you can stand it.  Brown and Brown has some clean accounting compared to all others and in my view may be the best investment available presently.

 

 

Charlie, would you mind explaining why BRO is the best investment available presently amongst brokers?  They seem to have the lowest organic growth.  Thank you.

[longterminvestor]

8 minutes ago, Marco Van Basten said:

Charlie, would you mind explaining why BRO is the best investment available presently amongst brokers?  They seem to have the lowest organic growth.  Thank you.

My opinion - current BRO price is not accounting for the $1.7B of additional revenue recently acquired with Risk Strategies.  Plainly, using the most crude valuation metric of multiple of sales - 5X - for a very much "back of the envelope" valuation.  

 

Pre-acquisition TTM rev was $5.5B at 5X = $27.5B

Add $1.7B (7.2B) and you have $36B

current market cap is $26B

 

$10B is a pretty decent margin of safety.  

 

Yes - shareholders of Brown were diluted slightly with share issuance to acquire Risk Strat.  Which skewed the EPS print on recent quarter which showed a "reduced EPS Quarter over Quarter".  I believe that spooked some folks.   

 

Actually we should want Brown to trade lower so the effects of the $1.5B buy back will be more accretive to shareholders.

[dealraker]

29 minutes ago, Marco Van Basten said:

Charlie, would you mind explaining why BRO is the best investment available presently amongst brokers?  They seem to have the lowest organic growth.  Thank you.

Yes currently that's the case.  You have to ask how long that's to be and consider valuation.

 

If BRO earns $5 or so in 2027?  That's 15 times today's price.

 

It's just a guess for me but BRO has the record and the same management team.that's repeatedly made it work far better than anyone would have hoped.  

[benchmark]

1 hour ago, longterminvestor said:

My opinion - current BRO price is not accounting for the $1.7B of additional revenue recently acquired with Risk Strategies.  Plainly, using the most crude valuation metric of multiple of sales - 5X - for a very much "back of the envelope" valuation.  

 

Pre-acquisition TTM rev was $5.5B at 5X = $27.5B

Add $1.7B (7.2B) and you have $36B

current market cap is $26B

 

$10B is a pretty decent margin of safety.  

 

Yes - shareholders of Brown were diluted slightly with share issuance to acquire Risk Strat.  Which skewed the EPS print on recent quarter which showed a "reduced EPS Quarter over Quarter".  I believe that spooked some folks.   

 

Actually we should want Brown to trade lower so the effects of the $1.5B buy back will be more accretive to shareholders.

There has been significant multiple expansion since 2020 for insurance brokers. Prior to that, P/S ration hovers around 2.8-3.5 for BRO.  Given the insurance market becoming 'soft', and the time it might take for them to integrate the large acquisition, I think 5X might be optimistic. BRO is likely fairly priced, still a great business. 

[longterminvestor]

On 11/6/2025 at 6:54 PM, benchmark said:

There has been significant multiple expansion since 2020 for insurance brokers. Prior to that, P/S ration hovers around 2.8-3.5 for BRO.  Given the insurance market becoming 'soft', and the time it might take for them to integrate the large acquisition, I think 5X might be optimistic. BRO is likely fairly priced, still a great business. 

The emphasis was more on the gap between price and value noting market was not accounting for the $1.7B in sales recently acquired rather than anchoring on an appropriate multiple of sales.  Although you bring up good points, what is the appropriate sales multiple, integration risks for acquisitions, acquisitions overall, and market cycles.  

 

5X sales was a "dart on a dart board" round number based on all acquisitions for the industry going back to 2023 of all shapes and sizes (3 years worth of acquisitions).  Highwater mark was the US Assure deal Ryan paid 8.8X.  Truist (80%) was 4.2X but there was a previous deal in 2023 selling the first 20% at the 4.2X multiple.  AON paid 4.9X for NFP.  AJG paid 4.5X for Woodruff and 4.2X for AP.  There was a large deal in Australia that traded at 6.4X.  McGriff cost Marsh 5.3X.  I am basically citing the larger transactions over the previous 3 years here.  Is 5X high?  Maybe, maybe not - the pool of "would be sellers" is getting smaller, not larger.  

 

There is something else I have thought about with relation to broker acquisitions.  We as investors have an array of assets to purchase - almost identical to sitting in the vegetable section of a supermarket.  The entire section of vegetables is available to us investors - pick your option and pay your price.  Insurance brokers are relegated to the "proverbial" tomato only section.  Now there are many (too many) types of tomatoes available however insurance brokers can only buy tomatoes.  Does that mean they are experts in the art of buying tomatoes?  Maybe.  Do the brokers know that market better than anyone? Or are they arbitrarily bidding up the price of tomatoes amongst themselves?  All the while, we investors can watch the tomato prices and just go buy/eat lettuce if we want to, we investors have that option.  Something I have been thinking about.  And it applies to all industries with acquisitions, not just insurance.   

 

There was also an emphasis multiple of sales being a crude metric.  My lens on the price paid for businesses in brokerage has changed somewhat overtime.  If you see some pervious posts I am loudly saying "These are nosebleed multiples".  However I have come to learn more over time that certain acquirers are better/can produce better results than other acquirers.  Cash flow generation is a key metric there - some are experts and others just pretend.  This is what some might refer to as integration or integration risk.  

 

Integration of a business purchased at AON or AJG looks very different than at BRO or RYAN.  Finding the businesses that can extract more profit from revenue is the key, obviously.  Some places you will have to learn all new systems and get new management and other places you might not even get a new business card - they allow you to trade under the same name - with little change (except for producer comp which will get chopped).  

 

Addressing the hard/soft cycle - if the financial markets are selling brokers in a soft market and buying in a hard markets - LET THEM!  That's the opportunity.  No one could have predicted the hard property market on 2021-2023, it just happened.  Or the softening D&O market.  What about auto rates in NY?  An insurance brokerage business who will be here forever is no less/more valuable - they will transact in all market conditions.  Yes - brokers make more in a hard market and less in a soft market.  And if your ultimate goal is to build-to-sell, then you want to find XYZ broker to acquire your heavily weighted property firm in a HARD market with elevated revenues.  XYZ broker SHOULD know to discount the sales appropriately knowing the sales are arbitrarily high in the cycle due to property rates being elevated.  KEY would be, does the XYZ broker properly discount and not overpay.  Or if you are the seller, you want XYZ Broker to be non-the-wiser.  The caveat, I guess, is if XYZ Broker is going to own it forever then paying up, slightly, is not so bad over the long pull.   

[dealraker]

5 hours ago, longterminvestor said:

The emphasis was more on the gap between price and value noting market was not accounting for the $1.7B in sales recently acquired rather than anchoring on an appropriate multiple of sales.  Although you bring up good points, what is the appropriate sales multiple, integration risks for acquisitions, acquisitions overall, and market cycles.  

 

5X sales was a "dart on a dart board" round number based on all acquisitions for the industry going back to 2023 of all shapes and sizes (3 years worth of acquisitions).  Highwater mark was the US Assure deal Ryan paid 8.8X.  Truist (80%) was 4.2X but there was a previous deal in 2023 selling the first 20% at the 4.2X multiple.  AON paid 4.9X for NFP.  AJG paid 4.5X for Woodruff and 4.2X for AP.  There was a large deal in Australia that traded at 6.4X.  McGriff cost Marsh 5.3X.  I am basically citing the larger transactions over the previous 3 years here.  Is 5X high?  Maybe, maybe not - the pool of "would be sellers" is getting smaller, not larger.  

 

There is something else I have thought about with relation to broker acquisitions.  We as investors have an array of assets to purchase - almost identical to sitting in the vegetable section of a supermarket.  The entire section of vegetables is available to us investors - pick your option and pay your price.  Insurance brokers are relegated to the "proverbial" tomato only section.  Now there are many (too many) types of tomatoes available however insurance brokers can only buy tomatoes.  Does that mean they are experts in the art of buying tomatoes?  Maybe.  Do the brokers know that market better than anyone? Or are they arbitrarily bidding up the price of tomatoes amongst themselves?  All the while, we investors can watch the tomato prices and just go buy/eat lettuce if we want to, we investors have that option.  Something I have been thinking about.  And it applies to all industries with acquisitions, not just insurance.   

 

There was also an emphasis multiple of sales being a crude metric.  My lens on the price paid for businesses in brokerage has changed somewhat overtime.  If you see some pervious posts I am loudly saying "These are nosebleed multiples".  However I have come to learn more over time that certain acquirers are better/can produce better results than other acquirers.  Cash flow generation is a key metric there - some are experts and others just pretend.  This is what some might refer to as integration or integration risk.  

 

Integration of a business purchased at AON or AJG looks very different than at BRO or RYAN.  Finding the businesses that can extract more profit from revenue is the key, obviously.  Some places you will have to learn all new systems and get new management and other places you might not even get a new business card - they allow you to trade under the same name - with little change (except for producer comp which will get chopped).  

 

Addressing the hard/soft cycle - if the financial markets are selling brokers in a soft market and buying in a hard markets - LET THEM!  That's the opportunity.  No one could have predicted the hard property market on 2021-2023, it just happened.  Or the softening D&O market.  What about auto rates in NY?  An insurance brokerage business who will be here forever is no less/more valuable - they will transact in all market conditions.  Yes - brokers make more in a hard market and less in a soft market.  And if your ultimate goal is to build-to-sell, then you want to find XYZ broker to acquire your heavily weighted property firm in a HARD market with elevated revenues.  XYZ broker SHOULD know to discount the sales appropriately knowing the sales are arbitrarily high in the cycle due to property rates being elevated.  KEY would be, does the XYZ broker properly discount and not overpay.  Or if you are the seller, you want XYZ Broker to be non-the-wiser.  The caveat, I guess, is if XYZ Broker is going to own it forever then paying up, slightly, is not so bad over the long pull.   

Listening to the Gallagher conference call Patrick G was saying, "Well I think you heard me say a few years ago we'd be lucky to get a 1% overall rate increase so I'm not going to sit here and complain about 5 or 6."

[pricingpower]

Thought this was a well done article on how TRA / Up-C structures like in RYAN are becoming way more common (8% of recent IPO's?) with a few examples of unintended consequences.  Personally I've viewed these structures as a signal that the company is not being managed as vigorously as it could be toward prioritizing external shareholders

 

https://www.undervalued-shares.com/weekly-dispatches/tax-receivable-agreements-an-emerging-asset-class/