Five Things to Consider When SELLING YOUR AGENCY

By Jeff Smith, JD, CIC

The process of selling your agency can be a long and winding road. As an agency owner, your agency has become a major part of your identity and is synonymous with your name in your community (often times the agency is the owner’s name). You have spent countless hours and energy building your business, serving your clients, and engaging with your company partners and now you have reached the decision to sell.

In addition to the emotional attachment to the agency and clients, there are also many objective considerations you must contemplate when selling your agency. Aside from the financial/retirement, tax, and legal considerations, there are many immediate issues you must address related to the process of selling your agency. Below is a list of 5 things you should consider when preparing to sell your agency:

01 Define What You Want

Before you start the process, establish exactly what you want and need at the conclusion of the sale. Objectively define what the result looks like. For every engagement we have with agency owners, we start with an extensive intake interview where we determine the priorities for the sale. Ask yourself questions about the following areas: value of the agency, financial component (lump sum, payment over time, earn out, etc.), client transition, buyer culture, staff, your future work-related obligations, legacy, agency name and location, and carrier relationships.

Pro tip – this is often the most overlooked part of the process but the most important. You must start with a baseline of your expectations to find the right fit for you and to be able to articulate that to prospective buyers. If you do not know exactly what you want, it is unlikely that a seller will know what you want and how to meet your needs.

02 Multiple Options

Do you want to consider multiple options in the selling process? This will require you to have a process to vet multiple buyers and conduct due diligence to ensure you find the right partner for your needs.

Pro tip – be sure to require every prospective buyer to sign an NDA prior to engaging in any discussions with the prospect. It may sound harmless enough to talk to an old agent friend about potentially selling your agency to them but as soon as the word gets out in your community that you are considering selling, you will have wished you required an NDA.

03 Multiple Offers

Do you want to consider multiple offers? While you can engage multiple prospective buyer options, there is an art to getting multiple offers through the process. You will need to make sure that you and the prospective buyers you are considering are a match and you should understand their acquisition experience and abilities. In addition, you should have a process to objectively compare the offers and negotiate the best deal for you.

Pro tip – while agencies have great value today, that is not a guarantee that every agency or PE buyer is interested in making an offer for your agency. You must do the work in advance of engaging with the prospective buyer to ensure your agency is appealing to their business

Deal Valuations (2012-2021)

04 Maximizing Your Agency Value

Generally speaking, this is a sellers’ market where demand is high, and supply is limited. In addition, we are in the midst of the greatest wealth transfer in the IA system with baby boomers retiring and selling their agencies. We continue to experience a very high M&A volume – with records being set almost every year. Private Equity buyers have invested between $25 - $35 Billion in resources buying independent agencies. IA market share continues to increase YOY. All of this has resulted in agency valuations reaching all-time highs.

Pro tip – While agency values have reached all-time highs, there is no guarantee that your agency is worth more. To maximize the value of your agency during the sale, we strongly encourage you to prepare by getting your agency in shape. First, gather all of the financial, production and performance related data on your agency. Second, get an independent fair market valuation to understand your value and risks in the agency. Third, address the risks, clean up the balance sheet and get your agency ready to sell.

05 Engaging the right Advisors in the Process

Who are the right advisors for you to engage in this process? We recommend establishing a relationship from the outset of this experience with the following professionals – M&A, Legal, Tax and Financial Advisors. Each advisor plays a distinct and important role for you in this process. Experienced advisors will guide you through the selling process – from NDAs to due diligence, LOIs to Purchase Agreements, tax and financial implications to your sale, these advisors will guide you through every stage of the process.

Pro tip – Take the stress out of selling and engage with an M&A Advisor from the start. There are many IA M&A Advisors that will manage the process from beginning to end for you by sourcing prospective buyer candidates, putting them through an objective vetting and due diligence process so you can make a decision about what is best for your clients, legacy, staff and retirement. In our experience, we have found that sellers using Agency Link have on average 5 – 10 selling options, 3 offers and sell for 15% above their valuation.

In Summary, you are only going to sell your agency once, be sure to do it right from the outset. Give serious consideration to the 5 areas that we discussed in this article and you will be much happier with the process and the outcome you achieve in your sale. For additional information about Valuation and AgencyLink services, visit iavaluations.com or reach out9 to our team at contact@ iavaluations.com

Founded in 2017, the IA Valuations team has performed over 200 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.

The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@ iavaluations.com to discuss your personal situation.

Copyright ©2022 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved.

March 8 IA Valuations - Risk Factors in Your Agency Operations and Valuation

May 24 Independent Agency M&A Trends and Predictions

July 12 Minimizing the Risks of An Agency Acquisition

August 16 The Agent’s Perspective on Transitioning Your Agency - What Consolidation, Perpetuation and the Wave of Retirements means to Independent Agencies

October 25 Is Now the Right Time? IA Valuations Program