Why An Insurance M&A Deal May Fail

One of the most frustrating problems faced by eager-to-sell agency owners occurs when an insurance M&A deal falls through. Preparing to sell your insurance agency, working to arrange a mergers & acquisitions deal, then waiting weeks only to discover that your hard work must begin again is a disheartening outcome. At Springtree Group, however, our experienced team works together to ensure that every possible step is taken to prevent this from happening to our clients.

If you are preparing to sell your agency, please read through today’s article to learn more about why an insurance M&A deal may fail, and how we will protect your interests at each stage of the process.

The Three Most Important Questions

  • Is the presented Letter of Intent clear?
  • Is the buyer conducting rigorous due diligence?
  • Is the buyer fully funded?

Is the Presented Letter of Intent Clear? 

When we vet interested buyers, we closely examine the LOI. We want to see if the buyer addresses the concerns that are at the forefront of your mind. Perhaps you have requirements regarding operations, restructuring limitations, or how the buyer plans to ensure uninterrupted service for all of your hard-earned clients.

If a buyer plans to materially change your business in a way that is a deal-breaker for you, we will not waste your time pursuing the deal.

Additionally, the LOI must clearly state the revenue and EBITDA upon which the offer has been based. We want to see how they have determined EBITDA, and whether or not their approach demonstrates a fair and accurate assessment of your agency. If we determine that the potential buyer has made changes to the initially agreed-upon price, particularly if said changes were made with the intent of their going undetected, we will terminate proceedings. 

Is the Buyer Conducting Rigorous Due Diligence? 

It is safe to assume that buyers are carrying out some type of due diligence. Unfortunately, if a buyer rushes this step or unnecessarily drags it out by involving any number of third parties, there is an increased danger that the deal will collapse.

At Springtree Group, we work with our buyers to ensure that their due diligence is thorough, prompt, and clear. We want all involved parties to have a full, accurate picture of the details of your insurance agency’s situation. Our reputation is our most valuable asset, so it is vital that we invariably act in good faith on behalf of both sellers and buyers 

Is the Buyer Fully Funded? 

The cost of loans is continuing to rise, and it is increasingly more difficult for borrowers to secure funding. While this is true across the board, it is disproportionately affecting niche markets. Insurance has always been a complex, difficult endeavor for buyers seeking capital, but it has not been this challenging since 2008.

In 2022, we saw that even large movers and shakers in the insurance market had to withdraw from deals because it was simply impossible for them to procure funding.

At Springtree Group, our unique perspective and understanding of the private insurance sphere makes it possible for us to offer robust, in-house funding for qualified buyers. This means that if we facilitate a deal between you and one of our vetted buyers, you can be confident that the buyer has the necessary capital to present a healthy offer.

The Takeaway

Selling your agency is likely one of the most important financial undertakings of your life thus far. We encourage each of our sellers to work closely with us to protect their interests – from listing to closing.

If you are considering selling your insurance agency, contact Springtree Group today. We will conduct an analysis of your agency, recommend a listing price, and begin to present your business to qualified, motivated buyers eager to operate an insurance agency in your area.