While negotiating the sale and purchase of an independent insurance agency is a challenging process, the work does not end when the papers are signed. The transition period, when accounts, assets, technology and employees of the selling agency transfer to the buyer, is just as important. Careful attention to details can determine whether the combined agencies will get off to a good start.
The first priority should be transferring policyholders from the seller to the buyer. Ideally, the carriers that both seller and buyer represented will accept master broker of record letters from the buyer. This eliminates any need to get BOR letters from individual policyholders and make the transfer smoother. The buyer should do the same for business the seller had placed with wholesale brokers.
If the seller represented carriers that the buyer did not, effective communication with them before the deal closes will ease the transfer. Buyers should not assume those carriers will give them appointments, especially if the carriers are caught by surprise. Carey Wallace of consulting firm Agency Focus worked on an acquisition where the seller’s lead carrier had been courting the buyer. Neither party kept the carrier informed. The carrier’s questions after the sale closed delayed the transition.
Where the seller belonged to an agency network, the ease of the transfer will depend on whether the buyer was also a member. Jon Persky of Optimum Performance Solutions says the transition should be easy if both are members. If the buyer is not a member and is not interested in becoming a member, accounts have to be transferred to the buyer’s individual carrier codes.
There is also the issue of transferring technology. Joe Totah, principal of Strategic Agencies, LLC and the publisher of this website, said that the ease of transferring the agency management system depends on the systems. The smaller systems tend to store data in the cloud, while the larger systems may have older legacy systems that still have the data stored on the agency’s own servers. Smaller and newer systems that have data in the cloud can be easy to transfer because all it takes adding an admin user so that the acquiring principal will be able to take instant control of the system.
However, for the older systems, it may not be that simple. The data from the old system must be exported in a format compatible with the new system. Wallace cautions that some systems may not permit exporting all the needed data fields, leaving the data incomplete. In addition, Persky warns that data extractions can take three to four months because automation vendors have limited capacity for doing them.
Wallace says that the employee transition is the biggest success factor. “Culture’s huge,” she says, “so I think having a plan to communicate to all employees that will be part of a combined entity is key.” The agency should present a consistent message and anticipate the types of questions employees will have.
The deal’s structure may dictate which employees make the transition, according to Persky. “If the deal was a stock purchase, the seller’s employees continue employment with that corporation.” In an asset purchase, conversely, employment does not necessarily continue. The seller’s employees are terminated the day before the effective date, then the buyer offers employment on the effective date to those employees they want to retain.
Transfer of physical assets, if any, will depend on the terms of the purchase agreement and whether the assets are worth the time and effort required to move them. “The question becomes, do you really want to bring the furniture and fixtures to a new location, or do you just want to buy new stuff?” Persky says.
There are less obvious issues to consider. For example, bank accounts may be included in the sale and will have to be transferred, Persky says, and that will require the bank’s cooperation. If they are not transferred, the carriers have to begin depositing direct bill commissions in new accounts, a change that can be a lengthy process. The seller’s employee benefit plans such as 401K plans will have to be terminated and employees will have to roll their savings into other plans or accounts.
There are important logistical decisions and actions that must be made after an acquisition deal closes. Getting them right will set the stage for future success.