Broker M&A activity to continue despite AUB buyout collapse

Insurance brokers like AUB facilitate coverage for home and contents policies, with analysts predicting continued growth in the general insurance market amid single-digit premium increases. Picture: iStock

Equities analysts that cover AUB believe that the backdrop for corporate activity in the broker sector is likely to remain heightened, despite private equity firms EQT and CVC Capital abandoning plans for a $5.25bn buyout of the Australian listed insurance broker.

“We think prospects for mergers and acquisitions in the domestic broker sector are likely to remain elevated,” Jarden analysts said in a research note.

Their grounds for making such claims is that Australian insurance broking consolidation had intensified in recent years, with recent deals including the acquisition of PSC by Ardonagh Group in 2024, Resilium Insurance Broking in 2021 and Envest in 2023.

Additionally, Marsh completed a major acquisition of Honan in 2023 for $700m, whilst Gallagher Insurance remained active with multiple bolt-on acquisitions.

“With this elevated level of sector corporate activity, we think AUB would remain well-positioned to be a participant given its scale as Australia’s second-largest broker, and proven track record of value-accretive acquisitions,” Jarden said.

Jarden analysts said that while failure of the proposal to proceed was likely disappointing for shareholders, they saw the share price reaction as a short-term reset in market expectations rather than any change in fundamentals.

“The underlying business outlook remains supportive despite the moderating premium rate cycle.”

AUB appeared confident on both the organic growth outlook, as well as the potential for further acquisitions, noting the company saw “significant opportunities to grow profits in the 2027 financial year and beyond”.

AUB reaffirmed its guidance for the 2026 financial year of between $215m and $227m in underlying net profit, representing earnings growth of 7.4 per cent to 13.4 per cent.

They pointed out that AUB was not yet seeing the same premium rate pressures as reported by peers, with the company indicating premium growth rates in Australia above that of competitor Steadfast for the 2026 financial year.

They said AUB was trading at an attractive valuation both in absolute terms and relative to the market.

“At the closing price of $30.63 the stock is well below our adjusted target price of $37.80.”

This equated to an annual forecast earnings multiple of 15.6 times, which was a 22.8 per cent discount to its ten-year average.

They said there were clear levers for continued earnings growth, including organic new business and inorganic opportunities across International and Retail Broking.

Margin forecasts sat well below AUB’s stated ambitions.

Analysts at Morningstar also said in a note they believed AUB had earnings upside from its market position, customer and insurance relationships, acquisition strategy and organic growth opportunities.

“We expect the general insurance pie to grow with single-digit premium increases, and for AUB to take share of the intermediated general insurance market,” they said.