From time to time, we hear the following refrain from potential clients: “Why do I need to hire a strategic advisor to sell my business? I’ve already been contacted by a number of firms that want to buy my business;” or “why should I pay a fee and hire an advisor? I can do this myself and save the money.”
Here’s the bottom line: If you’re thinking about selling the business, the worst mistake you can make is NOT to hire an advisor. Here’s why: you don’t know what you don’t know. Here are some of the issues you should consider:
1) Getting to the Right Value (10 Times 0 Is Still 0)
Preparing a company for sale to achieve the best result requires a fair amount of advanced preparation. You would not sell your house without cleaning, doing some touch-up painting, and making sure the basic systems were functioning properly. You would want it to look its best in order to sell it — the same is true with your business. That’s why we always say “we can’t show you or grow you until we know you.”
Not only do you need to explain the business in order to sell it properly, you need to evaluate the earnings stream. This is called the Pro Forma EBITDA. We cannot overemphasize how important this is. One of the biggest mistakes sellers make is to focus on the EBITDA multiple and not pay enough attention to the Pro Forma EBITDA. The issue with this is that the valuation of insurance brokers is invariably calculated as Pro Forma EBITDA multiplied by the EBITDA multiple. It takes both variables to come up with an adequate valuation, and you need professional assistance to calculate the Pro Forma EBITDA properly. It is NOT sufficient simply to remove non-cash items and take out one-time and extraordinary expenses.
That’s why the first thing that Sica | Fletcher does when we are retained by a client is to complete a due diligence process. Our team of professionals evaluates your business, whether you consider yourself a seller, a buyer, or are unsure of your next steps. The process is designed to be as efficient and streamlined as possible. The end result of this review process is to generate a report and Pro Forma EBITDA calculation. Then, we meet with you to review our report, discuss the Pro Forma EBITDA calculation, present your strategic options, and decide on a course of action. It is only then that we are prepared to reach out to potential partners.
2) Finding the Right Buyer (Maybe the Guy You Know Isn’t the Best Buyer)
While you may have been contacted by certain potential buyers, and you may have relationships going back a long time with certain individuals and companies, you can’t know all of the strategic players in the market now and what all of your alternatives are. As of today, there are at least 30 private equity sponsored brokers who are actively searching for acquisitions, plus other strategic players. Sica | Fletcher has the best network of strategic buyers and private equity clients in the country and has closed well over 250 transactions over the last three years. Don’t you owe it to yourself to know what your full range of options is for one of the (if not the) most important transactions of your professional life?
3) Using the Right Process
We frequently see the sellers of agencies speaking to one or two buyers at a time, sometimes in a series of discussions stretching out over months or even years. This is not only inefficient, but it very frequently results in a buyer selling their business for significantly less than its true value. Remember, there’s no Dow Jones Industrial Average showing the EBITDA multiples of insurance agencies and brokerages published in the Wall Street Journal. These multiples are created transaction by transaction. Given that we close the most transactions in the sector each year, we know where deals are getting priced. We don’t simply react to the multiples paid, we influence the multiple based on our knowledge of the buyers, the deals that have closed in the marketplace, and, most importantly, the amount of competitive pressure we can create in a sale process.
The bottom line is that you will not maximize the price you receive for your agency without creating a sense of pressure and competition in the process. This is not something you can do effectively without an advisor.
Here’s something else to consider: there are other factors besides price to think about in evaluating which potential buyer to partner with. It’s not sufficient to simply agree to sell to the highest bidder without considering other factors. Do you know what questions to ask to make sure the deal is right for you? After all, we are not just talking about your future business partners, but also the future of your employees, family members, and business legacy. Our process is designed to bring everything to a head in as short a time as possible, helping you make the most informed, efficient decision to give you the best deal - and peace of mind.
4) Getting the Deal Closed (How to Avoid Death by a Thousand Cuts)
It’s one thing to get a handshake or a letter of intent, but it’s another to get a deal closed in a reasonable time frame on the same terms as you first agreed to. You need an advisor to shepherd you through the process.
First, you will need to get through the buyer’s due diligence review. Then you will need a data room, organized electronically and efficiently. You will need to have certain members of your staff briefed on the process, without letting the information panic the rest of your staff. You will then need to organize, arrange, and conduct due diligence meetings and reviews. Sica | Fletcher’s staff has been through hundreds of due diligence reviews, and we can help you get through the process efficiently, discreetly, and successfully.
Once you get through the due diligence, you will need to get through legal, meaning all the agreements needed to close the transaction. We have negotiated so many of these agreements that we know the issues, risks, and hot points of each buyer. We can also help you select appropriate legal counsel and other advisors. There will be disclosure schedules to produce, indemnifications to discuss, employment contracts to negotiate, and a whole range of issues that you will not have the business experience to address without advisors who are experienced in closing these types of transactions.
Don’t make the mistake of selling without a strategic advisor. If you are beginning to think about exploring your agency’s alternatives, please don’t hesitate to reach out to us or call us at 516.967.1958. Sica | Fletcher’s objective is to work as your strategic advisor, helping you to evaluate your business, understand your strategic alternatives, and to maximize the end result as efficiently as possible. We look forward to partnering with you!
About Sica | Fletcher
Among the brokerage community, Sica | Fletcher is well known as the leading strategic advisory firm in the U.S. that specializes in the insurance brokerage space and related industries that compliment it. We are also the leading advisor to the private equity firms that are most interested in investing in insurance brokerages and in the private equity sponsored agencies that have been created in recent years.
The firm was founded in 2014 by Michael Fletcher and Al Sica, two of the industry’s leading insurance M&A advisors who have closed over $6 billion in insurance agency and brokerage transactions since 2014.