Selling an Insurance Agency
Before initiating the sale of your insurance agency, you should ask the following questions:
1. Do I know the real market value of my agency?
2. How will I find potential buyers and negotiate the best price and terms for myself?
3. How will I protect the confidentiality of the sale?
4. Will I be able to manage the business and sale process simultaneously, dealing with the time commitment and stresses each entail?
5. Do I know how to manage the process to reach an actual closing on the sale?
The reality is that most agency principals simply do not have the time, knowledge or experience to carry out this very important process on their own. Far too many owners attempt to sell their agency without the involvement of a skilled and experienced intermediary knowledgeable in the insurance brokerage business, and the end result is a high number of failed transactions or transactions where considerable money is left on the table by the seller. When you honestly understand the effort and challenges that lie ahead, you can recognize the value in hiring an experienced, professional intermediary to sell your insurance agency.
Here is where we at Agency Brokerage Consultants add a great deal of value to our clients:
- Preliminary Valuation– We perform valuations of independent agencies around the country all year long. At the onset of an engagement, we will conduct an analysis that involves a pre-due diligence to uncover the financial and strategic value of your brokerage business. Our process is very thorough and we are generally accurate in our assessment within 5-10% of the actual sale price. In fact whenever a 2nd valuation has been performed, ours has always been more accurate in relation to the final sale price.
- Market Preparation – We create a confidential summary of your agency that may range from 15-30 pages in length that educates prospective buyers on nearly every aspect of your business. Because of our pre-due diligence, the information contained is highly accurate and defendable in due diligence, alleviating most opportunities for buyers to try to renegotiate. Additionally, our summary gives us the ability to simultaneously disclose multiple buyers and create a private auction to flush out the very best offer. We pre-qualify the business for financing when possible, which dramatically increases the attractiveness for buyers and the number of buyers that can compete in the bidding process.
- Buyer Identification & Screening – Because of our longevity and marketing efforts, we have direct contacts with over 2,000 agency buyers around the country including local agencies to specialized agencies to private-equity backed groups and national brokerages. Our marketing is active (direct solicitation) versus passive (waiting for inquiries), which allows us to get multiple suitors bidding on an agency in a short period of time. Every prospective buyer must execute a confidentiality/non-disclosure agreement and provide information on their or their company’s finances and experience in acquisitions prior to receiving any information.
- Offer Negotiation – When you deal with one buyer, the expectation is that a negotiation will generally end in the middle. When you deal with multiple, qualified buyers, the one that makes the highest and best offer wins. The buyers also understand that we have others behind them and an attempt to negotiate too hard may cost them the opportunity.
- Terms – We have worked with more lenders on the sale of insurance agencies than any other intermediary firm in the country. We keep in regular contact with acquisition lenders and have very good working relationships with an array of financing options. This is a very critical component for agencies valued under $5M since many motivated buyers will need third party financing. Not every lender is the best fit for any given transaction; therefore, having multiple options allows us to help our seller clients receive the most money at the closing table.
- Purchase Contract Review – Having personally negotiated over 150 offers myself, I can tell you that it is the details that can trip up a transaction. A decent M&A attorney can advise you on the legalese of a purchase contract but they will not be knowledgeable of industry terminology, agency operations as they relate specifically to accounts receivables and payables, and standard representations. Details may be forgotten in the initial agreement that become apparent later on and cause a renegotiation and additional stress on the parties. An experienced buyer can also add provisions that create liability exposures that you may not recognize until after the deal is closed.
- Time – Selling a business is like rolling a boulder up a hill and the hardest part is right before you reach the top. It’s a bit of a challenge to put your full energy into the sale process when you have a business to run. We work full time managing the process from the preparation and marketing, to screening buyers, to communicating with all of the parties involved, to reviewing agreements, to organizing due diligence and the closing. The trailing 12 months leading up to the sale have the highest impact on the transaction price and terms, so taking your eye of the business to focus on the sale can be a double edged sword. Time is also of the essence in closing a transaction. Delays can cause a loss of enthusiasm and creates opportunities for new problems to arise. Our goal is to plug our team behind you to move the transaction forward with care and diligence so that you can continue running the business.
- Emotion – A skilled intermediary acts as a buffer between you and the buyer, reducing the chances of them fast talking you or of emotions boiling over and killing a deal (a very real possibility). Our job is to keep everyone enthusiastic, but calm, and focused on the end goal.
- Experience – Our clients receive the full benefit of the time, experience and skill of a team of our professionals. We know the various types of buyers and lenders that may be financing the transaction. We know the sale process. We know the potential, and sometimes hidden, pitfalls. Our experience brings an added peace of mind to our clients.
- Education – We are highly trained professional transaction advisors and business appraisers. All of our principals are Certified Business Intermediaries and certified Merger & Acquisition Master Intermediaries, there are only about 150 of the later designation in all of North America. A few members of our team are certified appraisers and business valuators, and one of our principals teaches business valuation through the International Business Broker’s Association. A professional M&A advisor must be knowledgeable in accounting, contract law, finance, business appraisal, marketing, negotiation and the M&A process and these require a commitment to continual education.
Our motto is “Knowledge – Service – Integrity” and I believe those to be our core values as an organization. We continuously strive to learn more about our business and that of our clients; we do whatever is needed to serve our clients; and we work as an agent for our clients, looking out for their interests. I thank you for your time in reading this letter. Please contact me if we can be of any assistance.
Posted by: Michael Mensch, CBI, M&AMI and Managing Partner