The marketplace self-selects – understand your place – are you selling a commodity, product, service, or an experience? What is the market buying? Are these compatible? What about the agency / producer you are targeting?
Every deal involves consideration – an exchange of value.
(What do you give and what do you get?)
Culture and Values must be compatible in the long term. These can’t be blended. This is more important than buyers and sellers realize.
Bad deals cost more than good deals.
“Thank God for unanswered prayers.”
In an acquisition – “What are you buying?”
The Value of an agency is where the buyer and seller meet.
Value = both price and terms
“The price is not the price…and terms are everything (I can give you any price you want, if I have free reign to set the terms)…” (Gary Jacobson / Larry Morrison)
“The ideal is for the seller to receive maximum after-tax dollars and the buyer to be subsidized when legally possible by the tax person.” (Gary Jacobson / Larry Morrison)
Owners have a fiduciary responsibility to the agency, and producers do not. When producers are owners, their ownership obligations “trump” their producer wants and needs.
Great producers can’t be managed (controlled) – only “channeled.” Often staff “hates” (resents) great producers.
Producers who aren’t under contract – may own their business.
CSRs, Account Executives, and others with client intimacy may own the relationships and (when possible) should be under contract.
When a producer leaves an agency, (s)he never takes as much of the business as they think and the previous employer never keeps as much as it hopes.
When a contracted producer leaves – the above still applies. Often a producer contract does not protect the ownership of the book by the agency but merely assures a penalty when the producer leaves with it.
Changing producer compensation is a high risk process. Great ones fight you and lesser ones complain. Adverse selection can occur.
Buying agencies must pay for the “deal” eventually and they do this through your cash flow (i.e., the value is simply the net discounted present value of the agency's future cash flow). (Larry Morrison / Gary Jacobson)
Many publicly traded “buyers” have long term expectations of 25 – 40% RoI and this may not be possible without significant changes in the selling agency (not just the efficiency of scale) + a squeeze down in producer compensation.
This can force changes in the personnel, comfort, culture, and values of the selling agency. Such substantial RoI projections may best be supported by internally grown producers and not by those who were purchased out of the marketplace of yesterday.
Mergers of equals never are.
Bringing a producer under contract after (s)he has developed a book is never easy. It always costs something to "purchase" restrictions on their knowledge and relationships. Adequate and timely consideration is required for a binding non-piracy executed during employment. When pressured, producers will often times sign a more restrictive agreement with a new employer than they will voluntary sign with their current employer.
The client is the only “owner” of their own account. (Repeat this to yourself daily. Even if you are not buying an agency.)
No one can tell a client where they can buy their coverage; but a good non-piracy can preclude a departed producer from accepting it without consequences.
Carrier contracts do not have the “franchise value” they once did.
Consultants sell / buy on an EBITDA formula (and some clients convert to a multiple of commission when they’re in the barroom bragging or complaining). Agents (without consultants) offer negotiate directly from a multiple of commissions.