If you’re thinking about selling your independent insurance agency, 2018 could be a great time to make it happen. Several economic factors have come together to create a “seller’s market,” but there’s no telling how long this window of opportunity will remain open.
As recently as two years ago, the average selling price for standard or preferred P&C agencies was only 1.5X to 2.0X commissions; however, in the current market environment, these agencies are going for 2.0X to 2.5X commissions. The market value of an independent agency primarily is shaped by current revenues, types of products sold, the firm’s financial track record, and future projections, as well as broader economic trends. As relates to the latter consideration, the recent uptick in pricing can be attributed to numerous market factors that are working in sellers’ favor, including:
- The pro-business climate fostered by the current government administration. As interest rates have stayed on the historically low side and lenders continue to gain confidence in the overall economy, buyers have easier access to funding to make deals happen.
- A robust stock market that is generating substantial wealth. After the DOW topped 20,000 at the start of 2017, the Dow Jones Industrial Average climbed 25 percent by year’s end. The S&P 500 and NASDAQ also jumped 19 percent and 28 percent, respectively, as a newly thriving economy and colossal corporate profits prompted a raging bull market in 2017.
- A notable increase in the number of private equity buyers looking for a high return on their investment. These buying groups often have millions of dollars in liquid funds behind them, and increased confidence in the insurance sector makes well-established agencies an appealing option for portfolio acquisitions.
- A higher ratio of agency buyers to sellers. An increasing number of brokers in their 30s and 40s are looking for opportunities to further their career by acquiring a well-established insurance agency. However, as more agency owners from the Baby Boomer generation move into retirement, the tide could shift in the not-too-distant future, with supply overtaking demand.
The confluence of these conditions creates a very positive scenario for insurance agency sellers. If you are considering an exit from your agency in the next few years, you may want to take action sooner rather than later. The economy and the stock market could take a significant turn for the worst at any time, narrowing the available options in the marketplace and making it more difficult to attain financing.
Springtree Group specializes in brokering and financing insurance agency sales and acquisitions and can advise you on the intricacies of valuing, financing, selling your agency and identify qualified and vetted buyers.
Preparing an insurance agency for sale is a lengthy process and requires careful attention to the business operations and financials. We have 30 years of experience negotiating offers, conducting due diligence for buyers and sellers, and arranging financing to ensure the deal goes through. If you are already considering transferring ownership of your insurance agency in 2018, now is a great time to start the process. To learn how we can help you buy or sell an insurance agency successfully, contact us at (972) 395-8811 or using our convenient online form.