Five Common Mistakes Insurance Agency Sellers Make

Mergers and acquisitions are not for the faint of heart, and a successful transaction takes patience, careful planning, and rigorous due diligence. Many independent insurance agency owners looking to sell their agency underestimate the time and expertise involved in coordinating a successful transfer, and end up wasting their efforts on unqualified buyers or making less than what they could have on the deal. Here are five mistakes that business owners frequently make when selling an insurance agency and tips for how to avoid them.

1. Underestimating the time to sell. Many agency owners wait until the last quarter of the year to start planning the sale of their business with the expectation that they can close the deal before year-end. A successful exit takes time, however, and involves a great deal of advanced preparation, both in terms of pulling together required documentation as well as planning the transition from an operational standpoint. Expect the acquisition process to take 6 to 12 months before all is said and done.

2. Getting too few bidders. National M&A activity was robust in 2015, and the seller’s market for independent agencies has continued through the first half of 2016. Agency owners should leverage this trend by negotiating with multiple bidders to get the most favorable deal. Even if one or more bidders are less-than-serious prospects, the perception that the agency is in high demand can work to the seller’s advantage during negotiations.

3. Overlooking the NDA. The last thing you want when offering an insurance agency for sale is for your clients or competitors to find out, or for your company’s proprietary information to end up in the wrong hands. Having a non-disclosure agreement in place early on in the M&A process is critical to maintain confidentiality and limit the buyer’s ability to contact employees, clients and carriers, or solicit any employees for a specified period of time if the deal doesn’t go through.

4. Neglecting day-to-day operations. Because preparing and negotiating the sale of an independent agency is time consuming, it can be easy to overlook the affairs of the day-to-day business. One of the worst things that can happen in the midst of a deal negotiation is for the agency’s revenues to take a sharp decline. Make sure that you are tending to your clients and staff, and continuing to drive the growth of your business during the M&A process.

5. Not bringing in an expert. In the same way that a newcomer to the insurance industry is liable to make costly mistakes, a seller without experience in mergers and acquisitions could find themselves in over their head. Springtree Group (STG) specializes in M&A deals for agencies with annual commission and fee levels under $10 million, with a sweet spot between $300,000 and $5 million. STG upholds the highest standards of confidentiality in working with insurance agency sellers while also performing needed due diligence to target qualified buyers with precision and verify a prospective buyer’s financial viability.

If you are considering selling your independent insurance agency, or if you are interested in acquiring an established agency to grow your business, call Springtree Group today at (972) 395-8811 or contact us online.