Four Reasons to Hire an M&A Advisor to Sell Your Insurance Agency

I know that many of our clients have researched potential brokers and M&A advisors online before picking up the phone to initiate the process of selling their insurance agency. For reasons detailed in other blog posts and video presentations that we have online, I believe that our value proposition is stronger than our competitors.  The point of this article is to address the overall value to an agency owner of hiring someone to assist them in selling their insurance agency.  For simplicity, the value is discussed under four areas:

 1) Make You Look Good

A professional M&A advisor will create what is called a “pitch book” or “confidential summary” of your insurance agency.  It is a document that gets shared with prospective buyers that serves three purposes if written properly: (1) educate the buyers about the business, (2) excite buyers about the opportunity, and (3) move the transaction forward faster by giving the buyers the information needed to make an informed offer and motivating them to take the next step.  I recently delivered a presentation to over 200 business brokers around the country on how to write an effective pitch book, so it is a topic that I am well versed on.  The pitch book is an invaluable tool in selling a business.

A good M&A advisor also adds credibility to the transaction process.  I’ve had conversations on this topic with the acquisition officers of many of the top acquirers of insurance agencies from Brown & Brown, to Arthur J. Gallagher, Hub International, Assured Partners, and the like.  All of them have told me that they prefer dealing with an M&A advisor/investment banker than the owner of the business, and many will not even pursue an acquisition unless the owner hires professional representation.  Many loan officers for lenders have also told me the same.  It takes a significant amount of work to complete a transaction and there are many steps to the process.  Most business owners are inexperienced in the process and do not have the time to dedicate to it, so the odds of getting to the closing table are greatly reduced if the seller does not have an advisor managing their side of the deal. Both buyers and lenders know this from experience, so they understand the value of professional sell-side representation.

2) Maximize Your Sale Price and Terms

The job of the M&A advisor is to simultaneously disclose multiple bidders and create a sense of urgency to the process.  Buyers are far more likely to move diligently and put forward their best offer when they know the owner is receiving offers from other parties.  I think this point almost goes without saying.

I have had many agency owners tell me that they know a handful of people that would be interested in buying their business.  The underlying point is that they don’t see the value in paying someone to help them sell their business.  Having worked with literally hundreds of buyers for insurance agencies, I can say with confidence that just because someone may be interested in buying an agency doesn’t mean that they will offer a competitive price or terms for it, or can even get the deal done.  The vast majority of would-be buyers are inexperienced and risk-averse, so they want to pay a “fair” price with the seller financing a significant portion.  An experienced intermediary will be screening heavily to find the most qualified and most motivated buyers, and will leverage them to maximize the price and terms for the owner.

3) Protect Your Interests

The first protection is confidentiality.  Every buyer should sign a confidentiality/non-disclosure agreement before knowing anything about the business, including the name of the business or the owner.  The second protection is ensuring that the buyer has the ability to actually pull off the deal.  This is where it gets tricky for the owner.  It’s not easy to solicit interest without disclosing who you are.  It is even more difficult to determine if they have the ability to consummate the transaction.  Every buyer claims to be able to borrow money, but the financing market is complicated and most buyers do not understand the intricacies of how lenders work.  It is also difficult to be certain if the individual is credit-worthy, even if they have an established and successful agency.  An experienced intermediary will verify the buyer’s finances and have them get pre-qualified with a lender before allowing them to proceed.

As the transaction progresses, the M&A advisor will be working to maximize your transaction value and minimize your liabilities.  Experienced advisors understand things like what is common in due diligence and what is not, how to navigate pre-closing contingencies such as financing and other third party approvals, and customary working capital requirements, asset allocations, representations and warranties post-closing.  It is often not until we get far into the process, or even until after closing, that many clients have recognized how hard we worked to protect their interests along the way.  The value of having an experienced transaction advisor watching your back through the sale process is less tangible than other aspects, but an important one nonetheless.

4) Reduce Your Time and Stress

As I already noted, it takes work to sell a business.  It is also stressful, since the business is likely one of your major financial assets and something that you have poured many hours of your life into.  An experienced advisor will assume much of the time needed to communicate with parties involved in the transaction.  There are many things they can’t do, such as producing financial documentation, but overall they will likely remove 50% or more of the time requirement from your plate.  The advisor will also be a buffer between you and the buyers.  This is often critical as direct negotiations can lead to a breakdown in communication between the parties.  Both sides will be under duress at times and benefit from having a middle man.  The advisor’s job is to play the role of quarterback and communicate with all the parties, including the lenders, accountants and attorneys, to keep moving the ball down the field.

Ultimately, the goal of an M&A advisor is to secure their seller client the highest offer with the best terms and close the deal as smoothly as possible.  It is seldom a simple task but a professional and experienced advisor creates more than enough value through the process to cover the expense of their fee.