Last year in one of our blogs, we stated that are most frequently asked question was “How Much is My Agency Worth?” Although I haven’t kept track since then, it appears as though the following question has become number one:
“We would like to acquire another agency, are you aware of any that are for sale?” The easy answer is; if they aren’t a client, we are not aware of any that are for sale. If we were aware that they were for sale, they would already be a client.
Why is it so difficult to find someone who is willing to sell?
Buyers versus Sellers
There is a buyer for each seller. Unfortunately for the buyers, for every seller there are five buyers that are interested in buying the agency. We rank agencies by size:
Premium Agency revenues of greater than $10 million
Large Agency revenues between: $5.0 million to $9.9 million
Mid Sized $2.5 million to $4.9 million
Smaller $1.0 million to $2.4 million
Small Agency revenues of less than $1.0 million
Almost exclusively, the agencies of $2.5 million and above are bought by the large brokers.
Who is left?
Does this mean that the large active buyers are not interested in any agency with revenues of less than $2.5 million? Absolutely not. Most of the large brokers will be interested in an agency if its revenues are greater than $1.0 million. Their interest level would be based on their desire to access a specialty line of business or if the agency can be rolled into an existing office.
Can I Compete on Price?
Most likely, the large brokers will be able to offer a higher price. In addition, they can easily fund smaller deals and pay the seller a high percentage of the Purchase Price at Closing. If you can’t compete on price and you can’t compete on funding, you are clearly at a disadvantage.
Is There Anything that I Can Do?
The practical reality is that many deals are still done between smaller agencies. Why are they done? In most cases, the buyer and the seller have a relationship and have known each other for years. The seller views the transaction as a merger rather than a sale. Our advice is that you need to work on building this type of relationship. If you just decide that you want to grow by buying another agency, the process could be very difficult. If you are a small agency looking to merge, we would love to hear from you. I would love to find a good home for you, your clients and your employees.
