Each year, thousands of baby boomers move one step closer to retirement. For those who have spent the bulk of their career building an independent insurance agency, the plans to leave the workforce often include plans to sell the business. If neither a family member nor employee is available or interested in the acquisition, these highly motivated sellers must look for an outside buyer to take over their accounts and take good care of their clients. In fact, industry experts estimate that three in four independent agencies will experience an ownership transfer within the next ten years, putting younger insurance professionals looking to acquire an agency at an advantage.
Buying an insurance agency is a cost-effective strategy to grow income quickly in the insurance business, but it is not without its risks. Deals often fall apart as a result of poor due diligence or inadequate funding. Here are five steps to take if you are looking to acquire an agency to increase the odds of a successful business transfer.
1. Know what you’re looking for. Deciding what size agency you are targeting and the product mix you want to offer are key considerations in your search for a prospective seller. Also look at whether you want an agency that is underproducing and in need of a capital infusion to capture growth opportunities, or one that is already producing a reliable revenue stream. Geographical location is important as well, not only in terms of reaching new clients, but local competition, type of products needed, and the ability to create synergies.
2. Surround yourself with experts. Buying an agency is a complex process. Make sure that you have a support team of advisors, such as a CPA, tax consultant, and transaction attorney to guide your decision making and help avoid common pitfalls. Also consider hiring an experienced insurance business intermediary with specialized expertise in agency sales and acquisitions. Doing so will help you find the type of agencies you have targeted and handle the detailed mechanics of this complex deal-making process. An added bonus, depending on the intermediary, will be the facilitation of the very difficult financing process. to ensure that you are able to secure needed financing and expedite the purchase.
3. Focus on due diligence. Reviewing a seller’s financials is critical, from the pro forma to several years of tax returns. You’ll want to make sure that the returns match up with commission statements, and also look at operating expenses and profit margins for the business. Likewise, examine the health of the agency in terms of account retention, existing carrier relationships, and staff tenure. High turnover in any of these areas can be a red flag. An experienced business broker, such as Springtree Group, can manage most of this process for you, so you can stay focused on your current clients while also ensuring that you have an accurate assessment of the opportunity in front of you.
4. Examine employee relationships. In an ideal scenario, you will be able to keep experienced team members on board with the agency during the transition, with no disruption to the business. If a producer or administrator plans to leave, however, you want to make sure you fill the position quickly, either with a qualified candidate from within or someone that you hire. In addition, make sure to have solid non-compete contracts in place, so that neither the seller nor any agents who leave the firm can solicit current clients and shift their accounts to another business.
5. Find the right financing solution. In many business transfers, obtaining a commercial loan from a bank is not a big issue. However, most banks won’t lend against the in-force book of business for an insurance agency, putting owners and prospective buyers in a quandary. Sellers would be unwise to put their personal assets at risk to underwrite a loan for the buyer, so using an organization that specializes in agency financing is the best course of action.
Springtree Group has multiple specialty lending products available for insurance agents and is uniquely qualified to help independent agencies obtain financing for a business transfer. Loans can be customized to the buyer and the seller, with interest rates generally in the mid-single digits and ten-year terms on the note.
Buying an insurance agency can be a smart move to catapult business growth and profitability. For the purchase to be successful, you must first find a qualified seller with the right opportunity, do the necessary due diligence, and find the right financing tools for the acquisition. Springtree Group works directly with independent agency buyers and sellers to structure successful transactions, maintaining a commitment to strict confidentiality and handling every aspect of the transfer, from deal structure and financing development to due diligence and closing processes. To learn more, call (972) 395-8811 or request information using the online contact form.
Welcome to the second edition of the STG Insurance Agent Sales Alert for 2015. Although it’s not even Valentine’s Day, the winter holidays will be here before you know it. During the fourth quarter of 2014, a number of potential buyers contacted STG in November and December wanting to close a deal “before the end of the year.” However, by the time Q4 rolls around, we must advise clients that in most cases there is simply not enough time to professionally complete the process unless the deal is all cash.
The process to find and close a transactions often takes six months from inception to closing. So if buying an agency is in your business plan for 2015, we recommend that you consider starting the procurement process now in order to complete your acquisition during this calendar year.
The listings below are a sample of some of the new independent agencies for sale that we discovered through our research or that were provided to us during the last 30 days.
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Carl opened his insurance agency in 1986, and over the years, he has developed a loyal client base. His annual revenues are close to $500,000, which affords him a comfortable living and supports his five-person staff. But, after nearly three decades of owning his own business, Carl is looking forward to retirement and starting a new chapter in his life. He plans to sell the agency and move with his wife to a nice condo near the beach in south Florida.
As luck would have it, Carl is able to locate a prospective buyer through a mutual contact, and after several weeks of discussions, they settle on a fair price for the sale of his agency. Carl pays for his attorney to draw up the necessary paperwork for the business transfer and is ready to close the deal. Meanwhile, the buyer, a modestly successful agent in his late 30s, talks to a lender about financing for the acquisition. The lender is willing to offer the funding, provided that the seller will cover 20 percent of the note. So, Carl visits with his banker and completes a stack of paperwork to apply for a loan. Several weeks go by with no word from the bank. Finally, Carl learns that the bank cannot close the loan because of the lack of hard assets to use as collateral.
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Welcome to the end-of-year edition of your STG Insurance Agency Sales Alerts for 2014! This has been one of the most aggressive years yet for middle market insurance agency buyers. Our clients continue to be enthused about buying opportunities because of four key motivations:
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Welcome to the November 2014 edition of the STG Insurance Agencies Sales Alert. Current national agency M&A activity continues to trend upward as we finish out the second half of the year. The seller’s market for independent agencies continues to be prevalent.
Overall agency valuations are improving as the economy continues to recover. There are an increasing number of well-funded bidders in the market as well as increase in Private Equity interest in purchasing successful agencies. Both of these drivers are pushing up multiples for most agencies.
Our list of potential opportunities comes through our growing network of more than 5,000 sell side intermediaries, broken financing deals, and our research activities. This pipeline is supplemented by our network of consultants, attorneys, CPAs, bankers, DOIs, PEGs and direct contact by sellers. The listings below are a sample of some of the new independents discovered through our research or provided to us during the last 30 days. Upon request we will provide our clients access to previous month’s and off cycle listings.
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You have built your book of business over years, maybe decades, and now you are looking toward a new chapter in your life. Whether you plan to retire or focus your attention on another venture, selling your insurance agency is a big decision with significant financial implications. Although you may think you know what your business is worth, it takes more than a ballpark valuation to find a viable buyer and complete the sale successfully. Here are three important considerations when selling your insurance agency:
1. Standard valuation processes don’t apply. You’ve crunched the numbers and determined the value of your business. The problem is, your buyer probably won’t care. Traditional rules of thumb for business valuations don’t work well for the insurance industry, because revenues are contingent upon commissions and most agencies have few hard assets. Even if you have followed the standard formulas to determine the worth of your business, most buyers will question your findings—and many may want to do a valuation of their own. Obtaining an appraisal from a reputable third-party can help assure the buyer that your asking price is fair. Having an outside quote also can speed up the selling process and ensure that you reap the greatest possible benefit from the sale of your agency.
2. Assets are great, but cash matters, too. A good list of assets will no doubt aid you in the selling process, but what really matters are the hard numbers that the new owner can expect to earn when buying your business. Prospective buyers will want to know the Sellers Discretionary Cash Flow (SDCF)—that is, the total compensation and benefits that come to the agency owner—to determine whether the profits are in line with their income goals. An independent business broker specializing in the insurance field, like Dallas-based firm Springtree Group (STG), can provide this type of third-party valuation and ensure that assets, cash flow and all of the other components of the financial income of your business are clearly documented for the buyer.
3. You shouldn’t go it alone. The smooth transfer of your insurance agency requires that numerous matters be handled efficiently and accurately, including proper valuation, buyer qualification, deal negotiation, tax analysis, and financing, among others. Most of these issues are beyond the experience or expertise of an agency owner. By contracting with a professional M&A firm experienced in insurance agency transactions, not only can you ensure that the sale of your business will go through faster, but you can also stay focused on the day-to-day operations to ensure that performance doesn’t suffer. Trying to sort out all of the components leading up to the sale while running an agency is a difficult process, and simple mistakes can cost you thousands of dollars, or cause a deal to fall apart entirely. An experienced intermediary can find a qualified buyer and manage the logistics of the transaction, so you can move forward with the next chapter of your career.
Springtree Group specializes in matching buyers and sellers nationwide for insurance agencies with annual revenues under $5 million and managing all aspects of the business transfer. STG not only can provide an accurate valuation for your insurance agency, but can also help you find qualified buyers while maintaining strict confidentiality, so that your employees, carriers and competitors do not learn about the planned sale. In addition, STG works with a highly specialized group of lenders that offer various financing options specific to the insurance industry.
Managing the sale of an insurance agency takes experience and a broad network of industry contacts. You’ll see a much stronger payback if you employ a professional advisory team to help you with the process. For more information, or to discuss the sale of your insurance agency, call Springtree Group at (972) 395-8811 or contact us online.
If you are well organized, have a knack for numbers, and enjoy meeting new people, a career in insurance sales can be very lucrative. But, just because you do well as an agent that is no guarantee that you will do well as an agency owner. Running a company, even a small one, is a very different undertaking than working for an employer and managing one’s own book of business. So, how can you tell whether you are cut out to run your own insurance agency? Here are three key questions to consider.
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In the insurance industry, the majority of independently owned agencies are smaller operations with a single office. An agent with a three- or four-person support staff will build a profitable business over 15 or 20 years, establishing a loyal client base and earning respectable revenues, in hopes of some day selling the agency and enjoying a comfortable retirement. But, what happens to the business if the owner dies? When a sole proprietor owns an agency with no junior partner to take over the reins should they pass away, family members often find themselves searching for guidance on the next right steps. If no one is prepared to take over the agency and continue operations, then finding a buyer may be the best course of action. Here are several factors to consider for contingency planning that can make the sales process easier.
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Welcome to the May edition of the Springtree Group Insurance Agent and Broker Sales Alerts. National M&A activity so far this year is trending lower than average when compared to the last five years. The seller’s market for independent agencies continues to be prevalent, with an ongoing buyer’s market in the captive arena.
For those seeking insurance agencies for sale, Springtree Group uses a multi-level and joint endeavor to develop the most suitable acquisition targets in combination with local market intelligence to which only the client has access. In addition, we provide our clients with additional tools to access the 90 percent of sellers that are not openly and publicly communicating their intention to sell.
The listings below are a small sample of some of the new independent agencies for sale discovered through our research or provided to us during the last 30 days. Upon request we will provide our clients access to previous month’s and off cycle listings.
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Welcome to the February 2013 edition of the Insurance Agent and Broker Sales Alerts. Typical for this early point in the annual business cycle we are seeing a rebuilding of activity. The Q4 turmoil created by the anticipated capital gains tax changes has died down and fresh seller leads are beginning to return to the market.
Please remember that access to sellers can be difficult because open exposure of the desire to sell can be a concern for sellers, due to the impact this information could have on insurance carriers (markets), employees, clients and the competition. As evidence and as reported by our strategic partners Marsh Berry, only 10% of all deals in the $1M range are publicly known.
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