The Risks of Selling Your Insurance Agency on Your Own

Many of our clients had attempted to sell their agency on their own before calling us.  It is certainly understandable to want to avoid having to pay a commission in addition to paying the taxes on the sale; however, owners seldom yield the best price and terms in attempting to sell on their own and, more often than not, most attempts end in wasted time and effort.  The following are real stories of former clients.

Buyers that You Know

Client #1 had a successful practice specializing in insuring contractors.  She had built the business upon years of networking within professional associations.  She decided that it was time to retire.  One of her local competitors was a large independent that had acquired other agencies, all through direct negotiation with the sellers.  The client thought they would be a great candidate to buy her agency and reached out to the principal, who was in his early 70s.  He knew of her reputation and said they were certainly interested.  After some discussions, the buyer presented an offer for no money down and with a pay-out based on retention.  She later contacted us and we sold the agency for a higher price with 80% paid to her at closing.  (This story is very common)

Truth #1:  Most would-be buyers expect the seller to carry all the risk.

Client #2 had owned his agency for decades and was approaching retirement.  I met with him and began working with him to get things ready for a sale.  During this time period, an agent that he had known for many years contacted him about buying the business.  The buyer had a larger agency and younger sons working for him, so the client thought it would be a good fit.  After months of going back and forth with the buyer’s financial advisor, he received an offer.  The offer was for 1.16 x revenue with 50% down, the rest financed by the seller with interest-only payments for a few years and the “potential” for another 0.8 x revenue if the business grew 10% per year for five years.  Needless to say, it was a terrible offer.  The client hired us and asked me to reach out to the buyer’s advisor.  I did, politely informed them that their offer was far below market, and received a scathing reply from their advisor.  Without wanting to get into a conflict, I moved on and disclosed other buyers.  We sold the agency to a different buyer for near 2.0 x revenue with 85% cash at closing and a fixed note on the balance.   

Truth #2:  Most would-be buyers do not want to pay a “fair” price.

Client #3 was ready to sell his agency and move on to a new venture.  He talked to his marketing reps, got the names of some local agencies that might be interested and contacted them.  Many weeks went by and no offers were yet on the table, despite some claiming they were interested.  We contacted him out of the blue to see if he was interested in selling.  We met with him and he told us the situation.  He agreed to let us represent him in a sale.  Within a few weeks, we had multiple offers on the table for him, negotiated the price that he wanted, facilitated the financing and closed on the sale thereafter with him never once receiving an offer from his other buyers.

Truth #3:  Most would-be buyers don’t know how to go about acquiring an agency.

Buyers that You Don’t Know

Client #4 had his agency for many years.  He was a retired military veteran and suffered some complications from his time in Vietnam, so his involvement in his agency decreased during the last few years that he owned it.  An individual representing an agency from outside the state contacted the client and told him that his firm is interested in buying the client’s agency.  The client released financial information and waited for the offer.  The buyer offered a low price and wanted the client to finance the whole purchase.  He rejected it and told the buyer that he wasn’t interested in discussing it further.  The representative for the buyer then proceeded to call the office when the client was not in and harass the employees.   Shortly thereafter, the client hired us to represent him.  We made the calls stop and sold the agency for a higher price to a different buyer with 100% cash at closing.

Client #5 was approaching retirement.  He had not quite committed to selling the agency but he received a phone call one day from an individual looking to buy an agency in the area.  The client was interested, so they discussed it and eventually agreed on terms.  The buyer wanted his son to become familiar with the business before closing.  The client figured it would not be a problem and brought him in under the guise as a newly hired employee.  He soon realized that the son was fishing around for information and quickly kicked him out.  Not surprisingly, the deal soured afterward.  The client hired us shortly thereafter and we sold the agency for a higher price than he had negotiated.

Truth #4:  Many would-be buyers that contact owners directly are unscrupulous in their behavior

Client #6 had a successful agency but was starting to think about selling it to move on to a new venture.  He received a call from an individual that was from outside the state but was looking to purchase an insurance agency in the area.  The two had a nice conversation and agreed to continue discussing a sale.  The buyer presented the client with a letter from a bank saying that the buyer was “qualified for up to $5M” worth of financing.  They moved forward but as things progressed some weeks later, it became obvious that the buyer was not qualified and the bank was not going to loan anywhere near the amount needed to buy the agency.  The client later called us and we ended up selling the agency for a higher price to a cash buyer.

Truth #5:  Most would-be buyers are unqualified.

Summary

I could continue on with many similar stories but these cover the bases of what we hear when an owner attempts to sell without a professional intermediary:  buyers that (1) expect the seller to hold all of the risk, (2) make offers exceptionally below market value, (3) don’t know how to buy an agency, (4) are unscrupulous, and (5) are financially unqualified.  I am sure that any of our former clients would attest to the benefit of our ability to locate, screen and negotiate with multiple buyers to yield the highest and best outcome.  The value of a skilled M&A advisor greatly outweighs the cost of the service.