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This article examines the most common types of insurance agency sellers, which we break down into two distinct categories: the owners - agency CEOs and founders - and the partners - professionals in charge of overseeing a sale to ensure the best outcome. The graphic above breaks this relationship down broadly, while the following sections provide greater details.
Seller 1: The Owners
Insurance agency sellers typically have clear motivations and goals going into the M&A deal process. Often, these result from the same source – for example, immediate cash needs might cause owners to consider selling and may also direct their goals for accelerating the deal process. More often, however, a seller’s motivations and goals exist as separate, albeit related, factors. The graph below breaks down the most common motivations cited for selling an insurance agency.
Insurance Agency Seller Motivations
Insurance agency owners enter into an M&A arrangement with one of several goals in mind. This goal reflects their hopes for what their own post-closing life will look like, as well as aspirations for their agency under new management. The following sections detail the most common owner goals we've come across and our corresponding advice for each situation.
Get In, Get Out
Although we typically advise against a goal of expediting the M&A deal process, insurance agency sellers may have many reasons why they want to complete a transaction as quickly as possible:
Personal Reasons. A CEO with chronic health issues may worry that their condition will interfere with running the business, or they could simply be looking to retire.
Financial Need. Urgent financial requirements (e.g., personal debt, business/legal liabilities, time-sensitive investment opportunities) may prompt owners to sell quickly.
Market/Business Environment. Concern over growing industry competition or desire to capitalize on a fleeting, high demand for their business may provoke a swift sale.
In these situations, owners are usually forced to accept a quick turnaround in exchange for less-than-favorable terms. In these situations, it’s common to see deals with low cash payouts and a higher degree of equity. Owners should be prepared to hand their agency over entirely to the buyer with little, if any, say in what happens to it post-closing.
Our advice for any insurance agency seller with the goal of acceleration is to create a clear outline of what terms you are and are not willing to accept in the deal. Having a well-thought-out summary of your expectations will help you decide between offers more quickly. We also advise that you stick to these terms closely; we see some owners who feel this goal forces them into an unfavorable deal, and they rarely view their compromise as a good choice in hindsight.
Making The Most
The insurance agency seller seeking to make the most out of a deal is usually looking for the highest possible earnout. Owners in this position typically take advantage of an extremely favorable agency reputation or market conditions. They tend to take in a high number of buyer LOIs before making a final decision, which usually results in a longer deal process.
We have two pieces of advice for insurance agency sellers with a maximum payout goal:
Be proactive in the early stages of the deal process. Your agency valuation will play a large role in influencing how buyers perceive your agency’s worth. Take time before bringing your agency to market to optimize your daily operations, thus increasing the likelihood of a higher valuation.
Pay close attention to the multiple being offered. Many owners we advise think a higher multiple = bigger payout, but this is not always true. For example, a 4x revenue multiple might generate a higher earnout than a 6x EBITDA multiple – if the agency has a high degree of cash burn, despite six being “higher” than four.
Legacy-Minded Sellers
The legacy-minded seller has likely built their agency from the ground up and wants to ensure that it continues to reflect their intentions post-closing. We see retirement as the most common motivation behind this goal, as owners begin to consider options for new management when they start settling into their golden years.
Our advice to a legacy-minded seller is to seek out transactions that will keep them on with the agency as an employee or an outside consultant for a few years to smooth out the changes in management. These arrangements can delay the seller’s retirement, but they ensure that the insurance agency seller retains some influence in the agency’s future direction.
Seller 2: The Partners
“Partners” is a general term that describes the professionals who help agency owners sell their agencies, but are not considered part of said agency. Generally, these fall into two distinct categories of advisory firms or investment banks.
M&A Advisory Firms vs. Investment Banks
M&A Advisory Firms | Investment Banks | |
Description | An advisory firm that specializes in or provides M&A advisory services exclusively for insurance agency sellers running a deal process | A financial institution that provides M&A as one of several financial services (e.g., issuing securities, financial advisory, market-making) |
Pros | Specialized M&A expertise | Higher degree of capital-raising abilities |
More personalized service | Access to global networks/resources | |
Cons | Little, if any, capital-raising capabilities | Less personally invested in your agency |
Usually (but not always) works with a smaller network of contacts | Usually higher cost and a standardized fee structure | |
Typical Deal Size | Small-to-medium | Medium-to-large |
Ideal Seller Goal | Agency owners seeking a higher payout or the ideal buyer to take over their agency will benefit from the expertise of an M&A advisory firm | Insurance agency sellers seeking a quick transaction will likely benefit from an investment bank’s larger network of contacts |
We should emphasize that the comparison information above is generalized, and may not apply to all such firms or banks. For example, Sica | Fletcher is a boutique M&A advisory firm, but we are also the first and only such firm to advise on deals of over $1B, despite the fact that we typically advise on smaller deals.
The following sections explore each kind of partner in further detail to help insurance agency sellers determine which option might be best for them.
M&A Advisory Firms
For the vast majority of insurance agency sellers, you will likely work with an M&A advisory firm. These are specialists whose job is to sell your agency as it currently exists, though they may advise you on possible paths to make your agency more profitable (and therefore more appealing to buyers). However, they do not act to significantly alter the state of your agency prior to a sale.
When selecting an M&A advisory firm to help sell your insurance agency, we highly recommend looking at institutions that rate the performance of M&A advisory firms. The most commonly used source for this is S&P Global data, which ranks the performance of M&A advisory firms across a variety of different metrics and industries. (See example below)
Investment Banks
Investment banks differ from M&A advisory firms primarily in their capital-raising abilities. For insurance agency sellers who wish to grow operations significantly prior to a sale to maximize their payout, investment banks will provide this upfront funding in exchange for a larger portion of the earnout.
Generally speaking, this is the primary reason that insurance agency sellers consider working with an investment bank rather than an M&A advisory firm. Sometimes, investment banks provide financing options for buyers, which can expand the pool of potential buyers (albeit using a more complicated deal structure) to match insurance agency sellers with the ideal buyer. In the right circumstances, this could also make them an ideal choice for legacy-minded sellers.
Know Your Goals, Know Your Partner
Understanding what you want to get out of an M&A process before getting started is absolutely crucial for selling your insurance agency. All too often, we see even experienced insurance agency sellers become overwhelmed by the deal process itself, losing sight of their initial goals amidst the chaos of valuation and buyer offers.
In circumstances like these, working with a trusted partner that you know well is essential to helping you keep sight of those goals. If you are interested in discussing selling your insurance agency with Sica | Fletcher, contact our founders using the 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