An AgencyEquity Exclusive
Selling an insurance agency is a different skill than building one. While many agency principals and executives have achieved terrific success building agencies, recruiting and mentoring agents and cementing relationships with clients, actually selling an agency is a time-consuming and detailed process with a required skill set all its own. There are issues that come up during the negotiation and execution of a transfer of ownership that are quite different from the issues that confront agency principals during the normal course of business. Your contacts you need to contact potential buyers for your agency is a lot different than your contacts you’ve been building to help you run and grow your business.
That’s where an experienced agency acquisition professional comes in. When it’s time to cash out, a business broker who specializes in insurance agencies can help you prep your agency for sale – so you can get the maximum price out of it. This is your nest egg we’re talking about here. This is everything you built when you weren’t contributing to your own 401(k) or pension plan, and for most agency principals, it’s your most valuable asset – if you can sell it.
And there’s where a lot of agency principals run into trouble: They haven’t gone through enough business acquisitions themselves to fully grasp the complicated courtships and rituals that occur between buyers and sellers of businesses, and too often leave themselves at a disadvantage.
One thing an established broker can do that few agencies can do for themselves is line up buyers ahead of an “open house.” Michael Mensch of Agency Brokerage Consultants, a business intermediary/broker with experience with assisting over 100 different insurance agencies in valuing and selling, states that one of the things his firm can do to add value is bring in up to 50 potential buyers, in some cases – in the space of a few days. “We try to compress the timeline,” he says. “Because when you do that, you have buyers bidding against each other to buy the business. You create competition! Without that compression, the seller has fewer offers to choose from.” Mensch calls that compression process “creating a controlled auction.”
Mensch added “Aside from marketing to bring in competing, strategic buyers simultaneously, the agency has to be prepared for sale by way of organizing for the due diligence phase in advance, pre-qualifying the business for third party financing and creating a confidential selling memorandum on the agency that will educate potential buyers on the history, operations, book of business and financials. If you don’t have all of these pieces together, then the auction fails to yield the best result for the seller. Additionally, buyers appreciate having all of the relevant facts up front.”
Bringing in possible buyers is just the beginning. Just like any good agent doesn’t waste time pitching to unqualified prospects, the broker also doesn’t want to waste time – or the agency seller’s time – dealing with people who can’t pay the asking price, and who can’t qualify for the financing.
“We know who the key players are in this market,” explains Jon Persky of Optimum Performance Solutions, another insurance agency broker out of Tampa, Florida.” “We know what they’re qualified for, and we also know how they structure their deals.”
Dan Menzer, of Optis Partners, another intermediary who specializes in brokering the sale of insurance agencies, echoes the importance of specializing in the industry. “We already know who buys the kind of agency that’s up for sale,” he says. “And we can also help the seller plan for a scenario that’s realistic.”
With dozens of potential buyers, an agency owner acting alone would be hard-pressed to conduct due diligence on every buyer. Mensch recommends getting a broker to do it on your behalf, on the front end. This saves a ton of time for the seller, says Mensch, and for the buyer, too: A buyer looking at acquiring multiple agencies need only go through the vetting procedure once. Moreover, often times a potential buyer blanches on releasing a great deal of information directly to an agency seller before he even knows he’s interested in buying. A broker, however, is able to establish due diligence on buyers as an industry norm, says Mensch. “They’ll say, ‘oh, ok, so this is the way it’s done.”
Qualifying Buyers & Maintaining Confidentiality
Sellers don’t want to waste time dealing with unqualified buyers. And neither do brokers. Most experienced brokers have a system for committing the buyer to a confidentiality agreement, while at the same time ensuring that the buyer is financially capable of consummating an eventual deal.
Confidentiality is the most important item of concern when selling or buying a business,” according to Mike Maiman, principal of MKL Acquisitions in Ventura, California. “Sellers don’t want to alert their employees, customers, suppliers or competitors that their business is for sale and want to be insulated from potential buyers until those buyers are proven to be “real.”
Prospective buyers have to fill out a confidentiality agreement right from the get go, on his website. They also must provide information on their assets available and how they plan to finance an agency purchase, before the deal goes forward. The result: A lot of time saved for the seller, who doesn’t have to deal with unserious buyers, or buyers who are a mismatch for the agency.