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Rethinking earn-outs in insurance M&A — why retained commission income is the metric that matters

AuthorsBrett Cooper

3 min read

Corporate

Mergers and acquisitions handshake

As merger and acquisition (M&A) activity in the insurance sector continues at pace, deal structures are evolving to reflect the unique economics of broking businesses. One area where this is particularly evident is in the use of earn-outs. This is a common mechanism for bridging valuation gaps between buyers and sellers.

At Brabners, our corporate lawyers advise both acquirers and sellers on structuring earn-outs that are commercially sound, legally robust and tailored to the realities of the insurance market.

A key trend we’re seeing? Moving away from traditional EBITDA-based earn-outs in favour of retained commission income (RCI) as the preferred performance metric.

Why earn-outs are so common in insurance deals

Earn-outs are especially prevalent in insurance M&A because:

The problem with EBITDA in insurance broking

While EBITDA (earnings before interest, taxes, depreciation, and amortisation) is a standard metric in many sectors, it often fails to reflect the true value drivers in insurance broking. That’s because:

Why retained commission income (RCI) makes more sense

RCI is essentially the net commission income retained by the brokerage after insurer payments and introducer fees. It is a more reliable and sector-specific metric. It reflects:

Buyers favour RCI-based earn-outs because they align incentives and reduce the risk of overpaying if clients don’t renew. Sellers, meanwhile, can benefit from a clear, measurable target that reflects their ongoing contribution.

Key legal considerations in structuring RCI-based earn-outs

Our corporate team helps clients navigate the complexities of earn-out drafting, including:

We also advise on retention mechanisms, security for deferred consideration and dispute resolution clauses — all critical to a successful earn-out arrangement.

In insurance M&A, sector-specific advice matters

One size does not fit all. Earn-outs based on retained commission income offer a more accurate and fair way to structure deals, but only if they are carefully drafted and negotiated.

At Brabners, our corporate lawyers combine deep transactional experience with sector insight to help clients structure M&A deals that work in the real world.

If you’re planning an acquisition or sale in the insurance sector, get in touch with our corporate team by emailing hello@brabners.com, by phoning 0333 004 4488 or by filling in the contact form below.

You can also get in touch with me directly.

Brett Cooper

Brett is a Partner in our corporate team with with a particular focus on the insurance and road transport sectors.

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Brett Cooper

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