Displaying articles tagged with: mergers & acquisitions | Clear Filter

Selling your agency and online dating

Business partner match puzzle pieces

What in the world can selling your agency and online dating possibly have in common?

Everything, actually.

You have worked your entire life building a relationship-based business.

The business may have been in your family for several generations. Or maybe, your family works with you, and even if your staff is not related by blood, they are family in every sense of the word too.

And your customers are your friends – some could even be lifelong friends.

You’ve helped them through so many milestones in their lives: weddings, first homes, children, new drivers, building their businesses, and of course at their darkest times when they are facing a loss.

They have depended on you to protect them, their families, their businesses and their assets -- and their relationships mean everything to you.

Don’t leave it up to chance

Relationships mean everything in our industry. That’s why I know that these relationships mean everything to you and your agency.

I have no question that the future of these people that you have touched through owning your agency is incredibly important to you.

When considering the sale of your agency, how can you make sure the future owners will value your clients and their lives as much as you do?

Selling your agency shouldn’t feel like a random blind date or be left up to chance.

It’s unlikely that you’ll find the best results when the process starts with an out-of-the-blue phone call, unsolicited LinkedIn request or the squeaky wheel up the street whom you never quite trusted. These are all the equivalent of a blind date.

It just doesn’t seem quite right to trust your valued client relationships to deals like that, does it?

Don’t get me wrong, I often hear from agents that they know exactly who they will sell to because they’ve met another agent sometime throughout their career and built a relationship with them.

Over time, they have come to know that their beliefs, culture and attitudes are aligned. Their likelihood for a successful transition is high because they are ahead of the game! 

But what if that’s not your situation?

If you don’t have that relationship already built, please don’t make one of the biggest decisions of your career based on a chance encounter.

Help is here

I’d like you to consider that there may be many other agents that are aligned in the same way, have created a similar culture in their agency, have the same or similar carrier mix and use the same software -- you just haven’t had the opportunity to cross paths.

It’s not only possible, it’s probable.

Heck, we know that there are over 1,300 independent agencies in the state of Ohio, so it’s impossible to think that you have had the opportunity to meet and get to know all of them.

Wouldn’t you want to know that there are several great options to consider when it comes time to sell your agency?

OIA can show you those options.

If you do not have an agency in mind, we can help you find the right match if you decide to sell your agency.

We can help you make a decision based on data, not chance – which is how this is exactly like online dating.

Online dating uses the information, interests, hobbies, etc. that people share about themselves to determine matches.

Then their algorithms match those with the highest probability of compatibility based on the data that was shared.

OIA’s Agency Link program is based on the same premise.

How does it work?

As a buyer or a seller, here’s how it works:

  • Fill out the Agency Link Form to let us know if you are interested in buying or selling.

  • You will be asked to describe the type of agency that you are interested in connecting with, including, location, size, mix of business, carrier mix, agency management system and niches.

  • Until a matching buyer or seller contacts us, you can expect OIA to reach out to you quarterly to update your profile because we know that things can change.

Prior to making a match, OIA will complete a valuation of the selling agency and that agency will pay a fee to OIA to complete a search for agencies that match their profile.

If we make a match between two agencies, we will share the potential buyer’s information with the seller.

At that point, the seller has the option to “swipe left” to decline the deal or they can choose to move forward and receive a proposal from the buyer.

(For those of you who are like me and have never used the online dating app Tinder, “swipe left” means that the seller can pass on any agency that they do not wish to work with.)

After the selling agency selects a buyer, OIA will then refer both parties to separate legal counsel to negotiate and finalize the transaction.

A happy ending for all

We believe that matching agencies that are well aligned will result in higher prices for the sellers, better transactions for buyers and a healthier IA channel as a whole.

We want you to be well informed when making the decision to sell your agency, and we know having the right advisor through that process can make all the difference.

Choose someone who understands that and is ready to be your advocate.

We are prepared to leverage the data we have to help you every step of the way, ensure that you know all of your options and achieve the goals that are most important to you.

We want to see agency owners selling their agency with the right information to make the best decisions for themselves, their families, their staff, their agency and ultimately, the IA channel as a whole. 

Ready to "Get Linked"?

Fill out the Agency Link form to receive a proposal!

Get Linked Today

Build vs. Buy: Organic growth in a rising rate environment

Lightbulb investing growth

Written by David Tralka, originally published by Insurance Journal

Now that interest rates are rising again, it’s time to re-examine whether buying an insurance agency is the smart choice for growth or whether building an agency makes more sense.

While lots of factors come into play when agents want to start their own agency or an owner wants to expand, it generally comes down to three questions:

  1. How much time do you have to grow your business?

  2. How much sweat equity are you willing to put in?

  3. What is your exit strategy when you’re ready to retire?

For nearly a decade, we had some of the lowest interest rates in modern history. Money was cheap, and it made sense to finance a merger or acquisition by borrowing. The cost of borrowing used to be around 5 percent (prime plus 1-2 percent), but as prime moves closer to its historical average of 7 percent, your borrowing costs could jump up to 9 percent.

How much time do you have to grow your business?

This leads me to my first point: How much time do you have to grow your business?

Assuming you’re not in a rush to acquire an agency or new book of business, organic growth may be your best bet.

Organic growth is the value you create when you invest in your own agency. Inorganic growth occurs when you purchase another agency or a book of business.

With inorganic growth, you earn a return on your investment, but you carry the expense of the capital to acquire it.

Organic growth has the best return because you’re not borrowing money and tying up your capital. As interest rates rise, organic growth becomes more attractive. Organic growth takes time and discipline.

You grow organically by investing in marketing and advertising, your producers and your staff. You also create value by watching your expenses and being smart in how you generate income. Agencies that are willing to invest back in the business will be more attractive to a buyer. Those are the agencies that will have more options to grow, increase value and transfer ownership.

Regardless of whether you grow organically or inorganically, you need to get your house in order.

Three factors to keep in mind are creating a top-notch team, updating your office management and CRM systems, and instituting financial controls.

Having a stable, reliable team makes all the difference in the world. This includes your top managers, producers and customer relationship team. You can’t grow if your producers aren’t producing.

You also can’t manage new accounts if you don’t have the infrastructure in place to meet your customers’ needs. Make sure you have the computer systems you need to automate and efficiently market to customers.

How much sweat equity are you willing to put in?

Cash flow is important, too. Do you have strong financial controls? How well are you managing expenses?

As you start to grow, there will be stress on your working capital.

Don’t underestimate the cost of growth and expansion, from the cost of new equipment and software to training and marketing. At the same time, have a plan for reinvesting in your agency.

Sometimes borrowing may be to your advantage. Rather than draining your working capital, you may wish to borrow to pay for the cost of bringing on a new producer or acquiring new office equipment.

Even fast-growing agencies may decide to borrow for some expenses such as buying a building versus leasing space.

What is your exit strategy when you’re ready to retire?

Finally, as agency principals approach retirement, they begin to consider ways to pass their firm on to the next generation, whether that’s family members, their partners or an outside buyer. These types of succession plans may involve borrowing.

Your exit strategy will be the single most important business decision you make, save the decision to start your agency to begin with.

If you’ve invested in your agency, you should have no problem selling it at an attractive price. But building your agency organically has many rewards and may make the most sense in a rising interest rate environment.

Next Steps

OIA offers products and services to help you answer the three questions above. Click the buttons below for more information:

Agency Link R.I.S.E. Report Valuation Services Perpetuation Services

David Tralka, InsurBancAbout the author

David Tralka is the president and CEO of InsurBanc, a division of Connecticut Community Bank, N.A.

InsurBanc is a bank dedicated to helping the independent insurance agent remain independent. InsurBanc understands the value of your insurance business and offers creative lending solutions to meet the needs of agency entrepreneurs.


Why aren't all agencies valued the same?

Many agency owners have not taken the time to learn the true value of what is likely their largest asset.

Mired in the day-to-day activity of managing their agency and producing new business, many owners think that the fruits of their labor will enable them to sell at two times revenue.

A false sense of security?

Further complicating matters is the flurry of merger and acquisition activity that owners read about in industry trade publications.

Some agency owners rest a little easier at night thinking that it is a seller’s market and that making difficult and meaningful changes to their operations is probably not necessary given the unsated appetite of acquirers.

The truth is that the current market conditions have given some owners a false sense of security and a belief that deal multiples will continue to climb forever.

Owners that plan to sell externally should know their true value before they take their agency to market.

By better understanding what drives their value, they will be compelled to make the changes necessary to drive their value up.

Owners that plan to perpetuate internally should know their value as they consider pricing for their next generation employees.

A tale of two agencies

Consider the following tale of two agencies.

Each agency does one million dollars in revenue and each believes that they are worth two million dollars.

But, as we take a deep look into each agency, we will see that there are key differences in their operations and these differences will create a disparity in value.

Agency A Agency B
  • 22% EBITDA
  • 5% growth -- all organic
  • 3 producers / owners (average age of 45 years old)
  • No account > 10% agency commissions
  • Actively recruiting Next-Gen talent
  • Perpetuation plan in place
  • Uses new technology
  • 15% EBITDA
  • Flat year-over-year growth
  • 1 producers / owners (65 years old)
  • 3 accounts = 40% of agency commissions
  • Struggling to find Next-Gen talent
  • No perpetuation options
  • Uses antiquated systems

The example above shows that despite similar revenue sizes, one agency would clearly have a higher value than the other.

Remember that value is determined by the profitability of the agency and the projected future profitability while taking into account the inherent risk of the agency and its book of business.

Questions about OIA's valuation services?

Contact Craig Niess at (800) 555-1742 or fill out a valuation inquiry on our Valuation Assistance page!

Get started

Who’s Buying Agencies? PE Firms, Of Course… Or Maybe Not

Are private equity (PE) backed firms the only buyers in the IA space? Depending on the national trade journal or study you read, that may be what you are led to believe.

However, that’s not what OIA’s data is showing.

Ohio Viewpoint of M&A by Sales ChannelThe Scoop on Ownership Transitions

Based on our data on mergers and acquisitions/transition of ownership in 2017, Ohio independent agencies have experienced 31 ownership transitions. Of those 31 transitions, 30 (97 percent) were perpetuated internally or bought by other retail agencies.

In 2017, that equates to just over $108 million in premium volume changing ownership hands, and only one of those going to PE firms.

As we look at our data for the 115 ownership transitions covering 2016 and 2017, only 11 involved PE firms. That means 91 percent of the ownership transitions over the past 21 months were internal perpetuations or sales to other retail agencies.

PE Acquisitions On the Rise

This is not to say PE firms are not actively acquiring independent agencies. National data shows a significant increase in PE acquisitions of retail agencies over the past 5 years.

However, we notice that the insurance community tends to hear about the big transactions and forget about the 91 percent representing a much greater volume of ownership transitions.

Take Ohio for example: Most IAs remember and talk about the deals involving larger independent agencies: Brooks Insurance Agency, Hoffman & Associates Insurance Services, Leonard Insurance Services, Kinker-Eveleigh Insurance, Diversified Insurance Services, SeibertKeck and Britton Gallagher.

But we overlook the other 104 transactions that have taken place during a similar timeframe.

While PE firms are on the hunt to acquire agencies, it appears retail agencies are just as hungry to acquire that business. In Ohio, they may have the inside track to being as competitive as PE firms in making those deals happen.

Leveraging Data to Help You

Two final points…

First, OIA is committed to being a data-driven organization. Our goal is to be a market differentiator for IAs. We are better leveraging data to help agents understand their options and make informed decisions about their businesses.

We have long been the trusted and respected resource for IAs with access to volumes of data. But we did not fully utilize this data.

Not anymore.

You will start to see OIA and the products we produce much differently. It will be a market differentiator-level of advice and analysis. We recognize M&A activity is going to persist and likely increase as the baby boomer generation continues to retire.

Therefore, as advocates for IAs, we must step up our game so you make the best business decisions for your clients, agency, family and legacy.

A Trusted Advisor to Independent Agents

On that note, OIA is developing services for IAs to help them in their ownership transition. We expect to have a new strategic business advising service available for agencies in Q1 of 2018.

We will be a trusted advisor to IAs as they consider their succession planning needs, valuation of their agency and other strategic business opportunities.

The details will be out shortly. In the meantime, I hope to see you at IACON17 on October 19-20 in downtown Columbus so you can shift your mindset and transform your future.

*OIA’s data does not cover every ownership transition in the IA space. However, we are not aware of a source that is able to capture every transition. Based on our estimates, our membership comprises around 80 percent of independent agencies in Ohio. Therefore, we believe we are capturing the prevailing trends in our marketplace.