Happy New Year from Sukay & Associates!
In the insurance business, the start of the new year often brings about a positive response. Many agency owners have already gone through their January 1 renewals; some are considering taking a well-deserved break or going on vacation. However, this year has been particularly challenging for businesses, which is why we haven’t received as many calls from agency owners looking to sell their businesses.
One reason for this is that many agency owners are experiencing growth in revenue as certain markets in the insurance industry start to harden. This typically leads to higher premiums and limited coverage terms, which can be beneficial for agency owners in terms of revenue.
However, there is a downside to market hardening. During this time, larger agencies tend to have an advantage over smaller ones and may snatch some accounts away due to their increased leverage. This is when building and maintaining strong relationships becomes crucial. It’s important to keep your eyes open for opportunities to partner with larger operations to level the playing field.
Looking ahead, there is speculation that interest rates will decrease in the coming months. This could lead to an influx of agency buyers who have been waiting on the sidelines, resulting in increased competition and pricing pressure.
Overall, while market hardening can present challenges for smaller agencies, it also opens up potential opportunities for growth and partnerships. It’s essential to adapt to the changing market conditions and stay vigilant for new possibilities.
If you’ve been considering this, there are a few important factors to take into account:
1.) Do you know the value of your agency?
This is important whether you are considering selling your agency or not. You should understand your value.
2.) You should know what your competition is doing.
I’m sure many of you have noticed that some of your colleagues in the industry have decided to sell their agencies. It’s important to stay informed about what’s happening around you, as this can directly impact your own business, especially in a challenging market.
However, this impact can actually be positive if you pay close attention. Some buyers are skilled at effectively involving clients, employees, and carriers during the integration process after a sale. On the other hand, if the agency or the buyer mishandles the integration process, it can create opportunities for you to gain new clients.
Therefore, by staying informed and aware of these developments, you can position yourself to capitalize on any potential opportunities that arise from agency sell-offs.
3.) Understand the buyers.
Even if you’re not currently thinking about selling your agency, it’s still crucial to be aware of the buyer landscape. Understanding which buyers are waiting on the sidelines and which ones are actively participating in the market can provide valuable insights.
There may be various reasons why some buyers are choosing to hold off in the current market conditions. However, it’s important for them to enter the market soon because their investors will expect them to show growth.
By keeping tabs on the buyer activity, you can gauge the competitive landscape and potential future opportunities that may arise. Stay informed about the motivations and movements of different buyers to stay ahead of the game.
4.) How long do you want to keep doing what you are doing?
In the past, it was common for buyers to accept a timeframe of 3 years before a shareholder retired when acquiring agencies. However, the landscape has changed, particularly for larger agencies. Now, buyers are seeking a longer commitment from shareholders, with a preference for them to remain fully engaged for at least 5 years or even more. This shift indicates the growing importance placed on stability and continuity in the business, as well as the need to align long-term strategies between buyers and shareholders.
According to my search results, the current market conditions have been sluggish due to higher interest rates. However, this is expected to change in the near future, and it’s important for you to ask yourself if you’re prepared for what’s to come. Buyers will be actively seeking out strong agencies to fuel their growth. Once interest rates decrease, many buyers will reenter the market and be willing to pay a premium for high-performing agencies. It’s crucial to position yourself as an attractive option when this shift occurs.
This market is tricky. It’s always crucial to find the right advisor, but it becomes even more vital in this type of market. Buyers may discourage you from hiring an advisor, as they believe it gives them leverage to negotiate a lower price for your agency. However, it’s important not to get caught up in the hype.
Some buyers may try to convince agency owners that the multiples have decreased due to interest rates. But with the right advisor by your side, they will ensure that buyers do not take advantage of the market conditions to offer you a lower price.
Having a knowledgeable and experienced advisor will help protect your interests and ensure you receive fair value for your agency. Don’t let the buyers discourage you from seeking professional guidance during this critical process.
