Browse any industry journal these days, and you’re bound to see reports of the booming market for independent insurance agencies. In fact, 2017 looks to be a record-setting year for M&A activity in the insurance arena, with reported transactions for the first three quarters of the year up 20 percent from the same period in 2016 (which itself was considered a record breaker). Strong demand and a robust capital market also led to higher valuations in 2017, and the growing number of private equity investors looking to add well-established brokerages to their portfolio means agency sellers have the opportunity to win big. If you have been thinking about transitioning out of agency ownership, here are some key points to consider:
There’s no time like the present. The Trump Tax plan has not had any significant impact on buying activity, and current low interest rates benefit those considering an agency acquisition. The availability of cheap money and the lower tax rate means buyers have cash to spend and are looking for opportunities.
Private equity players mean business. More than half the agency mergers and acquisitions over the past two years involved private equity investors, PropertyCasualty360.com reports. Because they have ample access to capital, they often are aggressive in their approach to structuring deals.
Business intermediaries make things happen. Private brokers play a vital role in matching prospective agency sellers with qualified buyers and seeing deals through to completion. However, not all business intermediaries are well-suited to the task. Springtree Group specializes in brokering and financing insurance agency sales and acquisitions, particularly for independent insurance agencies with less than $5 million in annual revenues.
Accurate valuations are key. One of the most common mistakes made by agency sellers — and by small business owners, in general — is over-estimating the value of their business. In the insurance industry, the standard valuation formulas don’t necessarily apply, and approaching the sale of your agency with a ballpark figure in mind can derail the transaction. An experienced business intermediary, like Springtree Group, can provide a professional valuation, as well as recommendations to help you fix any issues and get the most value for the brokerage you worked so hard to build.
Whether the robust M&A activity for insurance agencies will continue through the remainder of the year is unknown, but current signs are very positive. If you have considered retiring or changing your career path, this is a great time to begin planning the sale of your agency. Because selling an insurance agency is different from other small business transactions, the process is best managed by a business broker with years of experience in the insurance space. Springtree Group not only offers an extensive array of lending products and loan packages, but also uses a hands-on approach to manage a business transfer from deal origination through closing. We uphold the highest standards of confidentiality and work closely with agency sellers to ensure that you get the maximum value for your business. To learn more or discuss next steps for selling your insurance agency, call (972) 395-8811 or contact us online.