Many of our clients own their insurance agency because they perpetuated the agency from a family member. It was natural for them to grow up with a plan in mind. They received their college degree and then went to work in the family insurance business. They started out gaining an understanding of how the agency functions and then started their careers producing business for the agency.
All of this was done with the plan that they would eventually purchase the insurance agency.
Sukay & Associates started by accident. My plan started with an accounting degree and my CPA license.
I was able to obtain the ultimate goal by beginning my career with a Big 8 accounting firm. (This should date me). I decided quickly that this could provide me with a lucrative career but that I really didn’t enjoy auditing. I ultimately entered the banking industry and became the CFO of a large bank. During that tenure, the bank entered the insurance brokerage industry. We acquired many agencies and I ended up hiring my partner, John Biasiello. We became friends and we kept in touch when I left to become the CFO of a worldwide corporate travel firm. This was clearly not part of my plan.
After three years, the travel firm was sold and I decided that I had the opportunity to take on a different challenge. I just didn’t know what to do. After some reflection, I established two guidelines for my new career.
- I would not work with or for someone that I didn’t like and respect.
- I would not attend any meetings in which I didn’t add value.
Frankly, I didn’t have a plan on how I would accomplish those two goals. Fortunately for me, John Biasiello did have a plan. He saw an opportunity. He felt that insurance agency owners were being poorly represented by other advisors or they were being taken advantage of by potential buyers. He thought we could establish a firm that would be based on the following premise: Experience the Essence of a True Partnership. We work with clients to help them reach their goals.
It was clear that we understood how to do insurance agency sales. However, during the last 13 years, we have learned many things. It was hard to limit what we have learned but a blog can only last so long. Here are three very important observations:
Insurance Agency Sales are an Emotional Process, Not a Financial Process.
It is ironic that most agency owners feel that the most challenging part of the sales process is the locating of a potential buyer. This is clearly the easiest part of the sales process. We maintain a listing of buyers. The problem is trying to identify the best buyers for the client within that list.
The most difficult part of the sale of an insurance agency is dealing with the emotional challenges of selling the agency. Owners value their independence and the freedoms that it brings. Many insurance agency owners get their identity from owning the agency. They don’t view their role as a job. They view it as their life. They feel that selling their agency will eliminate their identity.
There Are a Limited Number of Independent Agencies
If this is true, I have failed to see the proof. We try to maintain very extensive lists of agencies in our key market area. We frequently get introduced to an agency through a referral from existing and former clients. I always check if that agency is on our list. I am always surprised when we miss an agency.
The market for agency sales has gone through many phases. We were part of the bank owned phase and now we are living through the private equity phase. We think that this is a great time to be an agency owner.
Never Believe An Insurance Agency Valuation
This seems like a strong statement from someone who spends much of his time performing agency valuations. There is so much bad information that is being distributed. Our blood boils when we hear about other advisors who are telling agency owners that they can get them a 10 multiple. We understand the concept of bragging so trust us when your friend who also owns an agency tells you that he got a 10 multiple. He is either embellishing the truth or he is very uninformed.
Unfortunately, there are many tricks that are used to exaggerate multiples. The most common tricks are when overhead charges are included in the EBITDA calculation or when an Earnout is factored into the multiple.
We have learned much during the last 13 years. We hope to continue to learn for many years to come. We value the relationships we have established with agency owners like Gerry Levy and Charlie Torsiello. They have taught me that the best things in my life can happen when you start out without a plan.
What is the Value of Your Insurance Agency?
As financial advisors who represent insurance brokers in business transactions, we are commonly asked one question “How much is my agency worth?” It is the one topic that each and every agency owner wants to discuss. It would be nice if we had one simple answer; unfortunately, there is no simple answer. Click below to download our comprehensive whitepaper which details “The 9 Factors That Indicate Value”.