There has been considerable M&A activity within the TPA and adjusting space over the past year.  Acquirers with excess capital in search of non-risk, fee-based companies have generated significant market interest in TPAs and independent adjusting firms.  Private equity has shown increasing interest in the sector, and there has been greater consolidation among regional and local players.  As recent M&A trends would suggest, TPAs with diversified product offerings and solid business results receive strong valuation multiples in the market.

Part of the solid valuations noted in the market relate to the observed scarcity of larger deals, as the number of large service providers is small comparatively.  The TPA/adjusting market is fragmented and the companies are typically spread out regionally.  There are regional leaders, but few national competitors.  The goal for some acquirers has been to bring regional players together in order to create a platform with national scope.

IBISWorld's Third-Party Administrators & Insurance Claims Adjusters Market Research Report indicates that carriers are also becoming more comfortable outsourcing work.  They also note that the percentage of claims adjusting done by third parties continues to rise as insurance companies look for ways to cut their expense ratios in a competitive environment.  Carriers have begun to realize that they can expect service levels from TPAs that meet their clients expectations.³  

The market demand in 2013 for niche and/or comprehensive claims solutions and the scarcity of good targets has led to strong valuation multiples and increased deal volume for TPA and loss adjusting firms.  We have highlighted some of the transactions that have occurred over the past year in the deal summaries below.