So, You Want to Buy an Insurance Agency?

If you’re looking into buying an insurance agency, chances are you are not new to the insurance business. In most cases, people looking to buy are well-equipped for the task, whether they’re current agency owners wanting to expand, successful insurance brokers looking to establish themselves, or employees buying out a retiring owner.

Demand for agencies of any size has been strong for the past several years, which is great news for sellers. The flipside is that the seller’s market can make it hard for buyers, who are facing more competition and need to be savvy to get a good value. Here are a few factors that can help you distinguish a great deal from a bad egg.

Know What You’re Buying. Knowing the seller’s motivation can help you determine the state of the client base and what, in reality, you are getting for the price. Retiring is a legitimate reason for selling, but if the owner retired mentally a few years ago, that’s going to be a different situation.

Are you simply purchasing the book of business, or the office space, equipment, and staff, too? You need to know how diverse the business is—whether it’s specialized or does a bit of everything—so you’ll know how comfortable you are taking the reins, and whether you’ll need to make any changes. Don’t assume anything, including that the business owner is running things the way you would.

Assess the Value. Valuation is a tricky thing; it’s not an objective figure. Factors to consider include past performance, projected earnings, tangible net worth, physical assets, quality of employees, risk management, and the amount of working capital. Even more confusing, most sellers represent their business in terms of revenue multiples, and buyers are often looking for profit multiples, not revenue.

This is where working with an experienced business broker can be a huge help. A business intermediary specializing in the insurance industry looks at the numbers across different agencies every day and has seen the good, the bad, and the ugly. Even in a situation where there is no one right answer, a business broker can identify great value and steer you away from a sinking ship. Most people aren’t buying and selling insurance agencies every day, so it makes sense to seek help from someone who is.

Conduct Due Diligence. Many buyers mistakenly assume that you review only the financials during the due diligence period. To ensure that the agency you’re considering is worth the purchase price, you should review the financials, along with the competition, all contracts and licenses, any employees and clients that will carry over, as well as sales processes in place, online reviews and social media presence, and any hard assets. Business brokers do this routinely, and they know how to avoid major pitfalls during the due diligence phase. This is a once-in-a-lifetime kind of purchase, and you only get one shot at doing it right.

Secure Financing. Agencies are acquired several ways. With smaller agencies, book buys are common. The buyer doesn’t purchase the building, the equipment or the staff, only the book of business. Another type of acquisition is a going concern, where the buyer purchases the business and the entire operation. A roll-up buy is when a larger agency purchases the entire operation and then incorporates it into the existing structure after eliminating duplications.

No matter how or what you are planning to acquire in your purchase, financing is going to be a hurdle, particularly if you are planning a leveraged buyout. Traditional lenders require a large amount of hard assets to finance a sale, and most buyers don’t have the collateral needed for a loan without putting their personal assets at risk. So how can you finance an insurance agency acquisition?

Springtree Group has close relationships with niche lenders that specialize in these kinds of transactions and can structure a financial arrangement that works for both the buyer and the seller. As a seasoned business intermediary with a long track record of success in the insurance industry, Springtree Group has the experience and know-how to make qualified business acquisitions. It’s easier to get access to capital, because the lender knows your purchase has been vetted properly, and you have a far greater chance of the deal going through successfully.

Are you ready to buy your insurance agency?
With decades of experience in the insurance industry, Springtree Group is uniquely qualified to help independent agencies with buy-outs, mergers, book purchases, and agency sales. To learn more, call our offices at (972) 395-8811, download our General Capabilities Brochure for an overview of the business purchase process, or contact us online today.