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How To Sell: Insurance Agency M&A, Step-By-Step

This article outlines how to sell an insurance agency by chronological steps, with a quick overview of the process in the table immediately following. For more comprehensive information, however, we provide descriptions of each step in greater detail further below the table. We also include some key insights we’ve gathered over several decades of selling insurance agencies.

How To Sell Insurance Agencies, Step-By-Step

#

Stage

Description

Duration (Average)

Advisors Needed

1

Sellers organize financial documents and make any efficiency optimizations to their business prior to an initial valuation

N/A

N/A

2

Sellers obtain a professional valuation of the agency based on existing financials, operations, market position, and clientele.

1-2 Months

M&A Advisor

3

Advisors prepare a slide deck presentation of the agency’s valuation and use their connections to present it to prospective buyers, either privately or in a more public auction environment

4-6 weeks

M&A Advisor

4

Interested buyers send a letter of intent (LOI) stating their interest in purchasing the agency, which the seller’s M&A advisor reviews

1-2 Months

M&A Advisor

5

Advisors send approved buyers financial records used in the initial valuation for their teams to do a separate valuation and check for inconsistencies or redundancies

1-2 Months

M&A Advisor

6

Advisors meet with the buyer to decide on the terms of the final payout (see section below for more details). When both parties agree on the terms of the transaction, the necessary paperwork is signed and sealed

2-3 Weeks

M&A Advisor


Preparation

Preparation is all about getting your house in order, so to speak. During this phase, agency owners must take a hard look at their businesses to identify strengths and weaknesses and often make difficult decisions about how best to optimize them before going to market.


Prior to that, however, they need to perform an honest self-assesment of their role as sellers. That’s why the first step is:

Determine Your Goals

People often think selling an insurance agency is purely transactional, but that couldn’t be farther from the truth. Most agency owners have spent their lives building these businesses from the ground up, and their social lives often revolve around the business. Such personal integrations can make the process of selling an insurance agency more emotional than owners often expect, which is why it’s critical to know what you plan to gain from this transaction. 


Agency owner goals vary depending on the individual, but the most common reasons we see are: 


  • Transfer Ownership. The owner is ready to move on and wants to facilitate ownership of the agency to a buyer they think will respect the legacy of the agency.


  • Retirement. The owner wants to settle down and live their life post-work.


  • Financial Security. The owner wants to maximize the transaction’s payout.


  • A Quick Turnaround. The owner is eager to pursue new ventures, which require a steady stream of income over time. This usually leads to equity-based payouts.

Assemble Your Team of Advisors

The single largest mistake we see insurance agency owners (and business owners in general) make is trying to represent themselves. On average, company leaders in any industry who attempt an M&A transaction using an in-house team average 30% less once the deal is complete. 


What your team comprises will depend on your individual case. Below, we offer a basic breakdown of the most common advisors in an M&A transaction.


Name

Description

Best for Agencies With…




< $30m EBITDA

> $30m EBITDA

M&A Advisor

Handles marketing strategy, implementation, and buyer negotiations.

M&A Attorney

Advises on buyer offers and what terms can be negotiated.

Tax Specialist

Handles deal structure, asset management, and any post-transaction reinvestments.

Financial Advisor

Helps sellers determine how much they need to make from an M&A transaction to achieve their goals.


Exit Planning Advisor

Orchestrates other advisors during the M&A process. Necessary for larger transactions.


Estate Planning Advisor

Helps sellers plan for asset and cash allotment following seller’s death. Especially important in large sales.



Identify Your Preferred M&A Buyer

The terms of an M&A transaction are largely dependent on the terms of the buyer, who has their own respective plans for your company. The two most common types of M&A buyers are: 


  • Strategic. Another company wants to improve their company by acquiring yours. Most often, strategic reasons drive buyers in the same or adjacent industries to acquire a similar company (e.g., aggressive competition, regional chains, etc.).


  • Financial. Buyers want to acquire your agency and intend to sell it after several years for a profit, typically as part of a larger portfolio of purchased companies (e.g., private equity firms, investment banks, individual investors).

Valuation

For a more in-depth examination of the valuation process, consult our previous article on the subject here


Once an agency owner completes their initial preparations, the next step is to complete a full valuation of the agency. The best approach is to work with a professional company that offers these services, which can take any form, from small business brokers to large investment banks, depending on the agency size. 


Valuation is a process in and of itself. While we will not discuss it in full detail here, an overview of valuation consists of the following steps: 


Overview: The Valuation Process 

Step

Name

Description

1

Collect/ Adjust Financial Statements

Owner works with senior management to compile documents depicting the health of the insurance agency, including income statements, balance sheets, and cash flow statements.

2

Analyze Revenue Streams & Potential Risks

Reviewers analyze the health of the company via client relations, service diversity, and the landscape of the insurance industry.

3

Determine Valuation Method

Depending on the agency’s health, reviewers determine whether to value it based on the market (value of similar agencies), income (projected future cash flow), or assets (minus liabilities). In addition, they decide whether to value the agency based on EBITDA (earnings before interest, taxes, depreciation, and amortization), revenue, or SDE (seller’s discretionary earnings).

4

Consider Intangible Assets

It’s not always necessary, but sometimes reviewers must consider elements of an agency that aren’t directly quantifiable, such as proprietary tech and brand reputation.

5

Compile Final Report & Adjust

Reviewers compile this information in a single report, which the owner and senior management analyze and provide any necessary feedback. The reviewers make adjustments based on this feedback, resulting in the final valuation.


Note: Insurance agency valuations are nearly always conducted with an asset-based approach using some multiple of EBITDA. This is because insurance agencies operate with a high level of assets (client lists, carrier relations, equipment, etc.), and EBITDA gives buyers a better sense of the agency's future profitability. 

Marketing

Your M&A advisor will help you take the information from your initial valuation and turn it into what's known as a “pitch deck.” This is essentially a digital slideshow intended to be presented to prospective buyers to showcase your agency’s best features in support of a sale.


An M&A pitch deck needs to include: 


Name

Description

Executive Summary

A high-level overview of your pitch deck’s contents.

Industry analysis

Competitor analysis and industry trends to give buyers a sense of context for the transaction.

Key Assets

A listing of client, carrier relations, and any intangible assets like proprietary tech that an agency has to offer a buyer.  

Go-To-Market (GTM) strategy

Information on the agency’s cash flow analysis, how it attracts clients, and the annual marketing spend.  

Key Financial Information

Balance sheets,  income statements,  EBITDA, and YoY agency growth for the last 5 years. 


Once assembled, your advisors will begin showing the pitch deck to buyers. Insurance agency M&A transactions take one of two forms:


  • Auction. M&A advisors present the agency's information to several prospective clients at once, encouraging a bidding war to ensure the right buyer and the highest possible payout.


  • Account-Based. The advisory team targets a single high-profile buyer on whom they focus their marketing efforts. 


Nearly all M&A transactions for insurance agencies take the form of an auction sale. However, an account-based transaction may be more common in the case of a regional buyer seeking to secure dominance in a local market. How long an insurance agency sits at market really depends on the quality of offers coming in, and whether an M&A advisor believes those offers are good, but on average, they last between 4 to 6 weeks.

Review Offers

The M&A process for insurance agencies typically requires several months before a seller receives their first offer. An offer usually arrives in the form of a letter of intent (LOI), which states the buyer's intent to purchase the agency. LOIs also describe the future plans for an agency, as well as the intended payout. For example, a private equity firm LOI might state that it plans to roll up your agency with others and resell them all several years later.

The common M&A payouts for insurance agencies include:

Insurance Agency M&A Payout Types

Payment Type

Description 

Best For

Flat

A singular payment made at the time of sale reflecting the total amount a buyer is willing to pay for an agency.

Sellers looking for a quick turnaround

Earnouts

Several payments made to the seller over time as the purchased agency passes predetermined financial or operational milestones. These can also take the form of deferred payments, which are additional payments made in non-milestone increments, like a quarterly or annual schedule.

Sellers seeking the highest possible payout

Financing

A loan made by the seller to the buyer, allowing them to purchase the company over time in paid installments with interest.

Sellers seeking a long-term payout (e.g., retirement)

Equity

Equity in the acquired agency, allowing the seller to maintain a stake in the company as it continues to grow under new leadership.

Sellers who believe in their agency’s growth potential 

Retention/Consulting Bonuses

Additional payments made to the seller for remaining on-staff as an employee or outside consultant to assist in the transition of the company to new ownership.

Legacy-minded sellers


The offers that come in will likely combine some of the options listed above, so it’s important that agency owners take this time to consult closely with their M&A advisors and determine whether an offer meets their stated goals. Once an offer is accepted, the transaction moves into due diligence.

Due Diligence, Final Negotiations, & Closing

Due diligence essentially takes the form of a secondary valuation the buyer conducts to uncover any potential risks in your company that have not already been discussed. During this time, sellers should be prepared to field difficult questions and provide additional documentation, especially if it pertains to any errors & omissions (E&O). In the event that the buyer uncovers a serious problem, the seller should be prepared to enter renegotiations to reach a final payout.


This is one of several key areas in the process where your qualified M&A advisor and attorney play critical roles in selling your insurance agency. Your attorney, in particular, should take the lead on final negotiations.

How To Sell Your Insurance Company

We hope this article provides some useful insights into how to sell your insurance agency. Our firm has spent the last decade honing the depth and dimensions of the sales process into a finely tuned operation. If you are interested in selling your insurance agency and aren't sure what to do next, we encourage you to speak with a trusted M&A advisory firm to identify your next steps. If you would like to speak with our team, use the contact information below. 


About Sica | Fletcher:  Sica | Fletcher is a strategic and financial advisory firm focused exclusively on the insurance industry. Founders Michael Fletcher and Al Sica are two of the industry's leading dealmakers who have advised on over $16 billion in insurance agency and brokerage transactions since 2014. According to S&P Global, Sica | Fletcher ranked as the #1 advisor to the insurance industry for 2017-2023 YTD in terms of total deals advised on. Learn more at SicaFletcher.com.


Contact: Mike Fletcher

Managing Partner, Sica | Fletcher


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