If you’re getting ready to sell your insurance agency, it’s time to expand your knowledge about mergers and acquisitions. At Springtree Group, our goal is to equip our clients with the information they need. The more you know, the better prepared you are to negotiate a deal that truly serves you. Discover the top five M&A acronyms you’re going to encounter and why they matter.
- EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This is an important term for assessing the current value of your business, which is also sometimes referred to as your operating profit. It differs from gross profits because, while calculating your earnings before certain expenses, such as taxes and loan payments, you do factor in certain recurring costs, like employee salaries. Your advisor will help you determine your EBITDA (if necessary) to demonstrate your agency’s earning potential to buyers.
- CIM
CIM stands for Confidential Information Memorandum (sometimes referred to as a Fact Sheet) Your advisor will prepare this document, which includes key information such as your financials, opportunities for growth, and basic operations. A thorough CIM will also provide the story of your business, adding narrative context to hard numbers. The purpose of your CIM is to attract qualified buyers by making a strong first impression, and it is one of the first documents you’ll create when selling your insurance agency.
- QoE
QoE stands for Quality of Earnings. It refers to an analysis of your agency’s earnings and overall financial health, typically conducted by a third party that is unbiased in favor of your agency or your buyer. It not only determines the accuracy of your EBITDA, but it also takes additional steps to adjust for any anomalies, unusual expenses, or perks that won’t transfer to a new owner. Including a QoE in your sale can secure buyer trust by validating your asking price.
- LOI
LOI stands for Letter of Intent. In the early stages of a business sale, you should receive a Letter of Intent (LOI) from your potential buyer. The LOI will outline the terms of the buyer’s proposal, including factors such as the offered purchase price, the scope of due diligence they’ll require, and the timeline for the sale. LOIs are non-binding. You can still negotiate at this point in the sale, and so can your buyer.
- APA or PA
APA stands for Asset Purchase Agreement and a PA is a Purchase Agreement. When you’re transferring ownership of your agency assets (as opposed to finalizing a stock deal (PA)), you’ll need an APA to finalize the terms of your sale. Unlike the LOI, your buyer will provide during negotiations, an APA / PA is legally binding, once executed. The terms of your APA / PA will impact everything from the way your deal is taxed to the legal liabilities held by both parties.
Springtree Group is dedicated to facilitating mergers and acquisitions in the insurance industry that benefit both buyers and sellers. Contact us to consult an advisor who can oversee your sale and ensure profitability, legality, and ease.
