Options Abound in the M&A Buyer Universe

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written by Tom Doran, Reagan Consulting

In the mid-1990s, there were only five acquirers of insurance agents and brokers with the capital and appetite to do mergers & acquisitions on a national scale. Now, only 25 years later, at least 40 buyers are competing for deals nationally.

Competition among these buyers is one of the primary drivers behind the current record-high valuations. While high valuations are great news for sellers, the increased buyer competition also creates another powerful seller benefit: agency owners have an unprecedented number of options for perpetuation partners.

In the not-too-distant past, a selling agency had few choices when selecting a perpetuation partner. And for the most part, they all looked pretty much the same. All were very large, had similarly rigid processes, and essentially offered indistinguishable benefits – capital, expanded market and program access, and a set operating structure.

Selling an insurance agency in 1995 felt a little like buying a car in the 1960s – choices were limited and customization almost non-existent. Back then the “options" conversation rarely extended beyond the manufacturer – GM, Ford, Chrysler or Volkswagen – the color, and the desired sound system – AM, AM/FM or, if you were a thrill-seeker, an 8-track tape system. There simply weren't a lot of customizations available, and you largely just purchased whatever the dealer had on the lot.

Not surprisingly, today's agency owners have many objectives when considering potential perpetuation partners beyond just the highest possible valuation. And when considering perpetuation partners, it's helpful to think about seller objectives across the autonomy versus resources spectrum.

HIGH

EARLY STAGE PE

AUTONOMY

LOW

LOW

REGIONAL INDEPENDENTS

MATURE PE

PUBLIC BROKERS

RESOURCES

HIGH Resources Autonomy Spectrum

Autonomy is important to many sellers who value their independence and fear a buyer will demand changes that undermine their culture and the overall success of their business.

Resources, or the tools and capabilities a buyer provides to sellers to help them to remain relevant in the middle-market, are highly attractive. These resources often take the form of programs, technology, training, leadership, recruiting and practice group expertise.

Buyers who offer maximum autonomy post-close, such as early-stage private equity firms, tend to offer far less in terms of available resources. Buyers who offer limited autonomy post-close, such as more mature private equity and public brokers, tend to offer far more in terms of resources. Larger regional independent agents and brokers tend to occupy the middle ground.

Every buyer in the marketplace lives at a unique slot in this autonomy versus resources spectrum. This is great news, as it has never been easier for selling agents and brokers to find the right buyer to meet their objectives.

The downside is that the number of choices to navigate when considering a sale to a third-party buyer are overwhelming. No one has the time to research and vet every buyer in the marketplace. Agents and brokers considering a sale are wise to select an experienced M&A adviser who can help them better understand the current universe of buyers and how those buyers can best meet their needs and objectives, whether that's more resources, greater autonomy or somewhere in the middle.

About the Author

Tom Doran has been with Reagan Consulting since its founding and is a partner of the firm. Tom’s areas of expertise include merger and acquisition representation, agency valuation, ownership perpetuation planning, agency valuation enhancement and strategic planning facilitation. Before joining Reagan Consulting, Tom was a consultant with Hales and Associates. Tom is a regular contributor to Reagan Consulting’s industry studies and is frequently published in various insurance industry publications. He also speaks on a regular basis to industry trade groups and associations on a wide variety of topics concerning the insurance distribution system. u