The Right Way to Sell Your Insurance Agency

The first step in selling your insurance agency should be to have a valuation performed by a firm involved in agency/broker M&A transactions.  One might ask, “Why?”.  Well, thanks for asking.  There are a few excellent reasons:

Reality check #1 – A firm involved in agency sale transactions will know what buyers are really paying in regard to transaction multiples and purchase terms. An experienced firm has negotiated with a variety of types of buyers, from individuals to local agency owners to public brokers, banks, and private equity-backed groups, so they know how each buyer type evaluates an opportunity.  The M&A firm will also have an internal database of transactions to compare your agency to, which should be detailed in the valuation report.

Reality Check #2 – A firm involved in agency sale transactions will know what lenders will loan for specific agencies, based on their various lending guidelines, and will know each lender’s terms. This is important as most buyers borrow money to acquire an agency, so the lender is a third party that must approve the deal.  If a deal doesn’t meet the lender’s requirements, then it is not likely going to happen.  Applying real-world third-party financing terms to a value is a litmus test to whether or not the value is realistic.

Preparation – A firm involved in agency sale transactions will help you identify areas for improvement or potential issues that could arise during the actual sale. Far too many agency owners initiate a sale without preparation or professional guidance and fail or simply leave money on the table.  Preparation is key to unlocking the highest value of your agency and getting to the closing table.

Professionalism – Perhaps most importantly, allowing the firm to perform a valuation gives you the opportunity to interact with them prior to committing to using their services to sell your agency – a more important endeavor. You can assess their professionalism, attention to detail, and level of service.  If they can’t deliver a detailed and professional valuation report, how well do you think they will do in presenting your agency to buyers?  If they do not dig deep to understand your business, how effective do you think they will be in helping you navigate negotiating offers and passing a buyer’s due diligence?  If they are brash or difficult to get hold of, is this really someone you want to work with?  Not getting to know the firm before hiring them to sell your agency is like marrying someone without dating them first!

So why am I writing this? 

When we do a valuation for a prospective client, we ask a lot of questions and request a lot of documentation.  It can be daunting and deterring.  It is necessary, though.  The information that we request mirrors – to a lesser degree – what buyers and lenders will want to know, so it is unavoidable if you want to sell your agency.  We ask for it upfront to better understand the business, properly assess the agency’s value, and avoid delays and complications during the sale process.

Selling your agency on your own or working with a broker that doesn’t ask many questions may seem like the easier path to take.  It is not.  You will eventually have to pass due diligence, and I have yet to find a buyer that doesn’t dig deep when buying an insurance agency.  Furthermore, delaying the inevitable could set you on the path to a train wreck (see my prior discussion).

So if you are considering dealing directly with a buyer or another M&A firm, call us first.  This may seem self-serving, but many of our clients have gone down these paths with failed results, and we could have saved them a lot of time and aggravation.  You only get one shot to sell your agency for the highest value, so do it the right way and work with an experienced professional.  Thank you.

Posted by:  Michael Mensch, CBI, M&AMI and Managing Partner