Being a seller in today’s red-hot M&A market provides owners a tremendous chance to cash in on their greatest financial asset. However, as the old saying goes, knowledge is power. Understanding the challenges and opportunities that owners will face along the way is vital to creating a successful experience. Like agencies in the industry, every transaction is unique and requires careful planning and consideration before, during, and after the process. This article will discuss a few challenges and opportunities that owners will face along the way.
Challenges
Valuation and Pricing
The experts at IA Valuations strongly recommend agencies get a valuation before taking your agency to market. Having a sound understanding of your agency’s financials, growth, and performance over multiple years will only enhance your ability to market and get the price you want for your agency.
It is important to note that there is a difference between the value of your agency, and what someone might be willing to pay for it. An understanding of value will give owners a baseline, and depending on the factors of the deal, incorporate pieces that will bring more value into the transaction. Navigating the price and assets in your agency brings about challenges and makes the complete comprehension of your agency one of utmost importance.
Finding the Right Buyer
This can be a challenge for sellers because there is so much at stake besides a high sales price. Depending on an owner’s wishes in the transaction, this could include the future of their staff members, their consideration and commitment to their clients, and similar agency values. In many instances we have seen, owners who sell their agency continue to be major parts of their communities. Leaving their clients in the hands of owners who are committed to taking care of their new clients is just one of the many factors selling owners are forced to consider while determining a buyer. Finding a fit is a long, meticulous process that will have an impact on sellers down the road.
Client Retention
In an industry with high commoditization, one of the biggest challenges owners will face is the retention of their book of business. Often times, maintaining strong retention numbers will be incorporated in the deal’s terms, which adds higher incentives but also additional challenges for these sellers. As an owner, staying on for a period to assist with the transition will have a major impact on the success of the deal. If not, bringing along experienced producers and employees can also bring about strong results for both parties. Creating a plan and communicating with clients can make significant impacts on the difficulties of client retention.
Opportunities
Exploiting a Strong M&A Market
We find ourselves in a seller’s market. The high demand for agencies creates a competitive environment where prospective buyers are not just abundant, but also willing to pay a premium for an agency that is well-established in its community. Owners can capitalize on this seller’s market. An owner approaching retirement age, with a strong agency and book of business, will have no shortage of prospective buyers. Owners have the advantage of choosing from a pool of interested buyers to ensure they find the most lucrative deal for themselves and their agency.
Financial Gain
One of the more obvious, and important, benefits of selling your agency is the financial gain of selling your greatest asset. Selling the agency represents a culmination of years, often decades, of hard work, dedication, and strategic decision making. A successful sale can be orchestrated as one lump sum or paid out over multiple years, whichever structure suits their financial goals. Ultimately, a sale can allow owners to enjoy retirement after a long career of helping protect friends, family, and neighbors in their community. Whether it’s traveling the world, investing in new ventures, or simply ensuring a stable future for their families, the financial influx from selling the agency empowers owners to turn their retirement dreams into reality.
Reduced Risk and Administrative Freedom
Selling your agency can significantly reduce your risk from market uncertainties and economic downturn. The insurance industry, like any other, is susceptible to fluctuations, and ownership often entails bearing the brunt of these risks. Selling mitigates your exposure to market volatilities in addition to securing your financial freedom. It will also reduce the administrative responsibilities that come with operating an agency. If an owner so chooses, they can not only take advantage of the agency’s sale, but also continue on as a producer with less of the stress and demand the day-to-day responsibilities of an ownership role requires.
In conclusion, selling an independent insurance agency in the current market presents several challenges as well as opportunities. It will provide you a substantial financial boost and the confidence to retire free from any ongoing market fluctuations and burdens. That all sounds wonderful, but you are faced with several challenges before you can cash in – such as finding the right buyer and getting the right price. Successfully managing these challenges and seizing these opportunities ensures a seamless transition, rewarding owners for their years of dedication while ushering in a new chapter of growth and stability for their agency.
If you’d like to get connected with our experts to go over your specific situation, we would be happy to help. Reach out to contact@iavaluations.com and we can get started on helping you secure your financial freedom, whether that’s now or planning for the future.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 220 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.
The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.
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By: Luke Hippler, MBA