An Insider’s Perspective (Buyer’s Strategy)
I’ve worked in the insurance business for over 20 years and have a unique perspective on the industry in that I’ve been fortunate enough to get different perspectives in my role as an agency owner, Sales Director for carriers and as the Vice President of Mergers & Acquisitions for a large regional agency.
In my role as V.P of M&A I was tasked to build a pipeline of potential acquisition targets for my firm. We were very successful as a company and closed 11 deals in my six years with the business. I’d like to share some insight into the mind/process of how a buyer views the acquisition process.
When sourcing deals the number one goal was to be able to talk to an agency owner one on one, without having additional competitors in the mix. If we were able to accomplish that, we knew our odds of closing a transaction increased dramatically. I knew there was no way the owner would be able to talk with more than a handful of potential buyers while also continuing to run their agency. I believe we paid fair prices for the deals where we worked directly with the seller, but the prices weren’t as high as the transactions we closed when an M&A advisor or Investment Banking firm were involved.
It’s pretty simple, if we were the only game in town, or one of a small group of potential buyers, it was highly unlikely that we’d have to pay on the high end of the market value for that particular business. First, it was rare that the owner understood the true value of the business and second, due to our size, we knew it was likely that we had more tools and resources to offer the seller than the local competition would.
When competition is brought into the mix in the form of multiple bidders, buyers must act quickly and aggressively or risk losing the deal. We never knew the other buyers the seller was speaking with. Was it a private equity backed company with more money than us? Another regional firm with the same tools and resources? Or perhaps it was a local competitor that had some built-in advantages that the rest of us didn’t. The point is that we had to decide quickly whether we were interested in the business and if we were, we didn’t hold anything back. We proposed an extremely aggressive offer right out of the gate. If it was an opportunity that we liked, but didn’t love, then we backed out as soon as another buyer came into the mix and moved onto other deals.
The best part of my current role is that I’m able to assist the sellers on the other side of the table by understanding the negotiation tactics of the buyers who are interested in their business. In every engagement we take on there are typically one or two potential buyers who have been beating down the client’s door to sell to them for years (that was me years ago). Those groups are included in the process, assuming they are financially qualified to buy the business, along with larger regional agencies, private equity backed firms and other strategic buyers. This ensures a competitive environment is created that provides the owner the maximum value for the business and more importantly it allows the seller to find the best culture and fit for the future of the business.
Our clients sell, on average, for 20% more than their market value and we’ve yet to have a transaction where the seller didn’t have a difficult time deciding which buyer than wanted to proceed with since they had multiple options that fit everything they were looking for. That’s when I know we’ve done our job.