MYTH #7: Buying Agencies will Solve Your Growth Problems

Allow me to share the story of a former client, Kevin.

Kevin built a successful captive agency on the West Coast. After years of grinding through changes by the carrier, he left and started an independent, commercial lines agency from scratch. He grew his book of business rapidly but eventually hit a wall.

Kevin felt that acquiring one or more agencies would help him break through by giving him more scale and more carrier markets, so he contacted Agency Brokerage. After numerous failed attempts to win acquisition opportunities, Kevin decided to join a larger firm, via a sale of his agency, and hired ABC to help with the process.

ABC introduced Kevin to a variety of buyers to help him find the right fit. He had several requirements in seeking the right deal since his objective was to stay on board and grow his book of business.

In the end, he sold to a growth-focused, national firm that provided him with new resources and equity ownership. ABC negotiated Kevin’s sale at a price that was nearly double the industry average for an agency of his size.

Kevin’s journey from wanting to buy an agency to selling is not an uncommon one. As the saying goes, if you can’t beat ‘em, join ‘em! The key takeaways from Kevin’s story are:

• It’s nearly impossible to compete with large acquirers.

Even when smaller buyers have capital for acquisitions, they often lose because they can’t compete on pricing, require too many hurdles to close the deal (like needing carrier appointments), and don’t present the same level of deal expertise as the larger firms that close dozens of acquisitions a year.

• Selling can enable growth acceleration.

Larger firms provide more growth resources in the way of tools, training, and carriers that may not be accessible to smaller agencies. As an owner-producer, selling to a larger firm also relieves you of many of the menial tasks, such as HR, IT, and accounting, that pull you away from higher-value activities. More resources + more time = faster growth

• Working with an experienced M&A advisor yields the best outcome.

ABC introduced Kevin to many firms that he did not know, helped him achieve his objectives by finding the right buyer, and negotiated a deal far better than he anticipated (or that his peers achieved). More buyers + market insight = better outcome