Ready | Set | Acquire

Are you ready to acquire?

I’ve spoken with hundreds of insurance agents over the years about purchasing an agency. The size and backgrounds of these hopeful acquirers have ranged the gamut. Some of them have been large firms who have completed several purchases, others were well-established agencies who were looking to complete their first deal and the last group are industry veterans looking to break into the world of ownership by purchasing an established business. Buying another business always seem like the next thing to do, but make sure have you done the necessary preparation and homework to put yourself in the best position possible to succeed. No matter the size or experience level, there are several things you should be asking yourself before getting ready to take swing at buying an agency.

What type of acquisition are you looking for?

Naturally everyone would like to acquire a multimillion dollar firm, for a cheap price, with a great staff and extensive carrier list that immediately vaults them into another level. If you’re set on purchasing a large stand-alone operation, be prepared (especially in today’s M&A market) to fend off several other suitors and pay a premium for the company. You should also be willing to accept the fact you could end up empty-handed after spending countless hours and resources searching for these companies, reviewing documentation, and submitting offers only to be told another buyer swooped in and outbid you. I’ve heard that story many times from large, experienced buyers in the past few years. They are puzzled as to why they’re struggling to complete the same types of deals they’ve always done. Fortunately, there are other acquisition strategies that could be more fruitful. Considering a few other options can help increase your success rate in buying another business.

Reconsider your size requirements

In the past if you’ve only considered acquiring something of a certain commission size, try dropping a level or two and completing multiple deals to get you to the same acquired revenue figure. I’ve had clients who are serial acquirees that find great success with this route. A nice side bonus is that you may find you’re paying lower multiples than what you would have had to pay on the larger deal.

Buy just a book of business

While taking this route you may not move the needle as much as you hoped when you were swinging for the fences, this type of acquisition can often end up being the most profitable for an acquirer. In this scenario you should be able to fold the seller’s book right into your current operation and not have to absorb the additional overhead costs of another physical location.

Is your house in order?

I’m sure that most reading this will say “well of course it is.” While that very well may be the case for some of you, others need to do some self-assessment/house cleaning/alignment before they are in a good position to acquire.

Capabilities of your current staff

Before you think about acquiring another operation you should ensure that your current business can continue to operate at a high level if you are not there to oversee the day to day activities. Chances are that you’ll spend a majority of time in the seller’s agency for at least 3 – 6 months after the deal is closed. What will happen to your current company without you behind the wheel to steer? There are only 24 hours in a day, so while working longer hours may be an option, it’s a limited one and your performance could suffer by trying to take on too much at once. If you don’t have someone who could take on several of your current responsibilities start cultivating that person now. You could get lucky and find a seller who has a superstar office manager who allows you to simply oversee the new business, but why not have that situation already in place within your own agency?

Technology

Is your current management system and accounting software easily capable of integrating the seller’s book of business and financials into them? Some of the ease of integration will depend on will depend on what the seller currently has in place, but make sure that your agency isn’t the weak link. Think about the kind of information you’re going to want to see from the seller during due diligence and the reports you’ll need to track your progress and retention after closing. Are you able to produce that type of documentation within your own agency right now?

What are your financial capabilities and resources?

You’ve found the perfect agency to acquire, your staff and agency can practically run on auto pilot and you’re ready to do the deal. How are going to pay for it? In the best-case scenario, the seller would agree to finance the entire deal and you could pay him from the future commission stream. While that can happen in some instances, it’s very rare and if you were in the seller’s shoes would you want to play the role of a bank? To put yourself in the best position to get a deal done plan on having 20% of the purchase price available to put down in cash. You may be able to get away with putting down a lower amount, but the less you put down, the more strain you’ll put on the agency’s cash flow and thus lower the odds of receiving approval from the lender financing the deal.

Putting your strategy together

If you really want to acquire an agency, you need to put yourself in the best position possible to succeed. Take some time evaluate what your profile as a buyer would look like to a seller, the seller’s advisor or a lender. If you take an honest look in the mirror and see some areas that need improvement start to work on them immediately. Put some of your profits away for a down payment, reinvest into technology or training for your staff so you can step away and tend to the duties at the new agency.

Do you have a target list?

Acquiring an agency block or a book of business requires patience, due diligence, and a general awareness of the market opportunity. Have you worked to build a target list of potential candidates? It is key to build that list, but also lay out the key criteria that you use to filter out potential deals. This will ensure you are ready for any opportunity that crosses your path.

While it’s okay to pursue a larger agency, don’t narrow your search so much that you end up wasting time and become disenchanted if you come up empty handed. Worse yet, what will happen if you do find the exact agency you’ve been looking for and you don’t have the staff, resources or financing in place to get the close? You could be forced to watch someone who is prepared get the deal done.

If you are ready then keep an open mind on what kind of acquisition you’re willing to go after. This will ensure you don’t miss opportunities you may have previously passed on in pursuit of the ideal agency. Some of the most successful buyers I’ve worked with over the last few years have developed this approach and are reaping the rewards of their newfound flexibility.

Reach out today if you would like to continue the conversation and get started with your acquisition planning. Contact us to schedule today.