Strategic Resources for Your Insurance Agency

How to Maximize your Agency’s Value Prior to Selling



The sale of your insurance agency is on the near horizon. Maybe you’ve planned it for years, or you realized that there are good deals to be had, or maybe you’re just tired of running the agency. Whatever your situation, you will want to get the most money possible for the business you’ve worked so hard to build.

Ideally, the planning for an agency sale starts long in advance. However, there are some things an owner can do in the months before to boost the sale price. Jon Persky of insurance management consulting firm Optimum Performance Solutions recommends that agencies make sure that they are appropriately staffed a year out, meaning not over or under staffed.  Sam Patterson, CEO of Springtree Group, a Dallas-based consulting firm, says agencies should avoid hiring any new employees unless absolutely necessary, and phase out non-essential staff and contractors.

Patterson says that the months before listing the agency for sale is the time to get financial reports in good shape. Hiring accounting professionals to ensure that statements and tax records are accurate; fixing any outstanding errors and omissions or other legal issues; and having plans to pay down or retire debt are all important at this stage.

Effective use of technology can add to an agency’s value and make it easier for the buyer to say yes, says Marc Greene of General Insurance Brokerage, a mergers and acquisitions brokerage in Florida. “If the agency management system is up to date,” he notes, “a buyer can get crucial information that will assist in making a quick buying decision.” Efficient operations based on technology can also pad the selling price. Persky says that a paperless agency is more valuable than a traditional one.

Don’t neglect your website and social media, Patterson says. “Keep your web presence up to date and flush with fresh, relevant content and an easily navigable website that loads quickly.”

Relations with the agency’s carriers must be handled carefully. Telling a carrier that you are going up for sale may backfire, Persky says. “It depends on who they are. Some are very protective.” Not all buyers will be acceptable to these carriers. Also, telling some carriers may be akin to issuing a news release. “Talking may bring an inundation of buyers and agencies looking to poach your employees,” he warns.

Patterson says sellers should be prepared to defend relationships such as those with aggregators and managing general agents. “Because many buyers will want to eliminate those relationships, you must be able to discuss how these contracts will work in a buy/sell situation.”

There are also issues with producers and staff to consider. “Sorting out the 1099 producer versus employee commissions is imperative,” Greene says. The agency must nail down contractual agreements before it goes up for sale. This includes employment contracts, non-disclosure agreements, non-compete and non-piracy agreements. “Since most 1099 producers are no stranger to moving their book of business,” Greene says, “be sure that the non-piracy/solicitation agreement is rock solid.”

Persky recommends not telling staff about a potential sale until after a letter of intent is signed. “You don’t want them jumping.”

Offering to finance part of the sales price may help sellers, but Greene calls it a “double-edged sword.” Patterson says his firm is very cautious about arranging long-term seller-financed notes. Greene says that a seller-held shorter-term note could hurt the buyer’s cash flow. The better option is lender financing. “Ultimately, the buyer must be creditworthy,” Persky says. “Why sell to someone who isn’t?”

Sellers frequently overlook important things like bringing in experts, such as accountants and tax advisers, early enough. Greene says sellers also fail to define the role they expect after the sale. Patterson says that sellers hurt themselves by failing to clearly articulate the agency’s story and explain how the agency adds value to the marketplace.

Ultimately, an agency that has been consistently well run will always attract higher prices. “An agency should not time a sale based on time intervals,” Greene says. “Agencies sell for top dollar if they have a good mix of business; good loss ratios and retention; competent sales and service staff; and up-to-date management and accounting systems.”

Those ingredients will serve agencies well anytime, whether or not they are up for sale.

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