So, you’ve made the decision to sell your insurance agency. While reaching that decision is incredibly difficult, the next stages in the process do not get easier. Therefore, we are laying out the six steps that you should go through to plan, prepare, negotiate, and execute the transaction.
1. Independent Fair Market Valuation
First, get an independent fair market valuation of your agency. This is likely the single greatest asset in your financial portfolio and an important part of your retirement. Understanding the fair market value of your insurance agency, the external market, strategic value, the risk factors in the agency, and your sale options is the first step in the process.
This will give you insights into the next 5 steps in the process. It will also shed light on the agency’s marketability, the timing of the transaction, and options to sell your agency for maximum value.
2. Clean Up Your Agency
Second, clean up your agency. Address all of the risk factors that you can as you prepare to put your agency on the market. This is the equivalent of staging your home when you put it on the market.
Depending on the timing of how long you have been prepared for the sale, this may be a simple or incredibly difficult task. While some of the risk factors may be outside of your comfort zone or interest in fixing, recognizing those and acknowledging them throughout the process is going to be incredibly important. Also, knowing what impact they will have on the sale is important.
3. Prioritize Your Needs
Third, prioritize your needs in this sale. This exercise requires you to spend time force ranking your needs in the transaction. Start by considering the end of the transaction, what success looks like for you, and then work your way back to where you are now to identify your next steps.
Some of the factors to consider include the purchase price, the total financial package, culture of the buying agency, your role post-transaction, what happens with your staff, the integration process (agency name, location, systems), the agency’s legacy, and how your clients will be treated. Spending time thinking deeply about your priorities in this transaction prior to starting the process will keep you grounded and give you a place to return to when things get stressful and you reach decision time.
4. Market Your Agency
Fourth, begin to market your agency. Quietly begin to let prospective buyers and other stakeholders know that you are interested in selling your agency externally. This can be done in a number of ways. You can do it yourself, work with an M&A advisor like IA Valuations/Agency Link, or share the information with your carrier reps and have them discreetly spread the word.
We recommend that you work with an M&A advisor in a confidential manner during this part of the process. Throughout this process, the most important thing is that you do not jeopardize the value of the agency. This part of the process creates significant risks if not done right. Working with an experienced M&A advisor will reduce stress for the owners and ensure that you get to focus on maintaining your business while they focus on creating a marketplace to sell your business.
While M&A advisors charge fees for their services, typically the fees are more than justified with the increased purchase price and total financial package that the M&A advisor is able to attain for the agency owner.
5. Confidentiality and Non-Disclosure Agreements
Fifth, enter into Confidentiality and Non-Disclosure Agreements (NDA) with the prospective parties that you are most interested in learning more about and possibly negotiating with. You should have individual interviews and conversations with each of the prospective parties that may be options for you to sell to. You should limit this number to 3 to 5 prospective buyers.
6. Sign a Letter of Intent With a Buyer
Sixth, after you have thoroughly vetted all of your options and the prospective buyers, make a selection and sign a Letter of Intent (LOI) with one buyer. Once you agree to the terms of the deal in the LOI, you are committing to an exclusive negotiation for an extended period, typically 60-120 days, with one party during an in-depth phase of due diligence. The due diligence phase is typically the most arduous, time consuming, and complicated part of the process. This is where all the hard work you have done in the previous five stages will pay off and you will be well prepared for the due diligence part of the process. Once due diligence is completed, you will sign a purchase agreement, and the sale of your agency is now completed!
Our data shows that it takes about 320 days total to sell your agency. From the time it takes an agent to reach the decision to sell their agency to actually signing a LOI takes an average of around 250 days, and there is an additional 60-90 days for the second phase of due diligence. This is a lengthy process, but each step involved is crucial to getting you the outcome you are looking for. It’s important to know these steps and the time commitment involved before jumping too quickly into the sale of your agency.
The decision to sell your agency is significant and can be stressful but it does not have to be. With preparation, time, and a clearly defined process you can meet all of your priorities and reduce stress. We encourage you to start by reaching out to Jeff Smith, JD, CIC at IA Valuations/ Agency Link at jeff@iavaluations.com to discuss your situation.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 200 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.
Copyright ©2023 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved. No portion of this document may be reproduced in any manner without the prior written consent of IA Valuations or OIA. In addition, this document may not be posted as a link on any public or private website without the prior written consent of IA Valuations or OIA.
By Jeff Smith, JD, CIC, CAE