If You Can’t Beat Them, is it Time to Sell?

History repeats itself, but rarely in ways the experts predict. The economic fallout from 9/11 led to a housing boom, a financial market crash, and a surge in student loan debt as unemployed workers sought new skills. Similarly, the COVID-19 pandemic set off a chain reaction of unexpected consequences: a stock market and M&A boom, supply and labor shortages, and a shift to remote work.

Of significance to P&C agency owners was the overlap of three trends:

1. Rising Premiums – Driven by a hard market caused by increased litigation and claims costs, and an unrelenting wave of natural disasters across the country.
2. Rising Labor Costs – Driven by a labor shortage triggered by the world going virtual during the pandemic. Wages increased, hiring became more difficult, and low-skilled virtual assistants became a necessity.
3. Rising Valuations – Driven by the Federal Reserve’s near-zero interest rate environment, which fueled unprecedented M&A activity from mid-2020 through Q4 2022 and sent agency valuation multiples to record highs.

The Growing Challenge of Staying Independent

The independent agency has always thrived due to strong relationships and local expertise. However, in today’s landscape, competing against larger brokerage firms is becoming increasingly difficult as local agencies struggle with higher customer service needs, restricted market access, and a shortage of experienced labor. Acquiring other agencies, or even employees, to fill some of those needs is near-impossible too, due to competition from a growing list of large, capital-backed firms.

Rather than continuing to fight an uphill battle, selling to a larger firm could be the smartest move. Here’s what it can unlock:

• Less Stress, More Stability – The burden of HR, compliance, and IT infrastructure shifts to the larger firm, allowing you to focus on relationships and client service.
• Stronger Carrier Relationships – Due to the size and scale of large brokers, your agency would gain access to top-tier markets, better commission structures, and exclusive programs by joining forces.
• More Resources for Growth – A larger firm brings to the table operational efficiencies, training programs for staff, resources for clients, various technologies, and capital for investment in tuck-in acquisitions and producer recruiting.
• Better Recruiting & Retention – A larger firm has a full HR department and recruiting program, as well as the ability to offer employees competitive compensation packages and long-term career opportunities.
• An Exit on Your Terms – Given the vast number of large, capital-backed buyers in the market, you have the ability to paint a picture of how you want to perpetuate the agency.

Whether you want to retire but need help transitioning out of the business, or you don’t want to retire but would rather shift into a sales or leadership-only role, there is a buyer out there for you who will pay you a competitive price for the agency and meet your needs.

You just need someone to help shepherd you to the right match and negotiate a deal that aligns with your goals.

The Window of Opportunity is Closing

For agency owners considering a sale, timing is critical.

• M&A activity remains strong, but valuations are adjusting as buyers absorb the pain of higher interest rates, a shifting carrier landscape, and revenue attrition after a spree of acquisitions.
• Individual agency valuations could also decline as expenses rise, premiums soften, and customer attrition compounds due to your agency’s inability to properly service them.

If you’ve ever thought, “I don’t have the time, money, or resources to compete at the next level,” now is the time to explore your options.

At Agency Brokerage Consultants, we help agency owners find the right buyer and best deal based on their desired outcome.  In the words of a recent client:

“Your help, expertise, and guidance have been PRICELESS. Honestly, you have brought so much value to me and my agency that I am just overjoyed and so very grateful.”

Posted by:  Michael Mensch, Founder and CEO

Direct: (321) 255-1309