If I had my choice, Sukay & Associates would only work with clients that were considering Internal Perpetuations. That strategy seems foolish on my part since our fee structure is structured in a manner to reward us when an insurance agency is sold to a third party. The reason why our fee is higher in a third party sale is simple; there is more money involved in a third party sale, especially at Closing.
Why do we Enjoy Internal Perpetuations?
Most internal perpetuations that we are involved in follow a similar pattern. The owner has a strong desire to perpetuate the agency internally, but the owner rarely rules out the option of a sale to a third party. This is true whether the sale is to a legacy or a single or group of non-legacy employees. Very few individual agency owners have the luxury of not having to be concerned about the Purchase Price or the funding risk that so often exists in an Internal Perpetuation.
Most agency owners feel that an Internal Perpetuation is less difficult than a sale to a Third Party when the reality is that it is very challenging to sell internally. That is why we enjoy the process. The more real the possibility of doing the internal perpetuation, the higher the excitement level becomes. We hear this comment: “Even if we can agree on the value, how will they ever come up with the money?” When you accomplish a difficult task, especially one that nobody expects you to accomplish, the reward is great.
One Good Choice and One Bad Choice
Our worst situation is when we present the client with one bad choice and one good choice. We always tell the client what they could expect from a third party sale and how much the company would be valued in an Internal Perpetuation. Here is the dilemma. What happens when the new management is unwilling to make changes to the existing company? Those changes would be made if the Company was acquired by a third party. The valuation for the Internal Perpetuation becomes significantly lower than the Third Party valuation. As a result, you end up with a very wide spread in the valuations, thus one bad financial choice and one good financial choice.
How Do We End With Two Good Choices?
We just hate to fail and believe we have a great track record for success. During our Internal Perpetuation process, we don’t start with “Here is the Value for Your Company.” We start by analyzing the agency and making whatever suggestions and changes we see that will result in the highest possible level of Operating Profits. We are successful because we are not burdened by past decisions. Most of the recommendations seem very obvious to us, but usually, require quite a bit of debate before they are accepted. If we are successful in maximizing the Operating Profits, the valuation will reflect the enhanced value of the agency. If so, you will still end up with a higher valuation for a third party sale, but both the Internal Perpetuation and Third Party valuations should be acceptable. You now have two good choices. It isn’t our decision on which path is taken. We just gave you two good choices.
Every internal perpetuation is different. Contact us and see how we’ve helped other agencies pass the baton.
Insurance Agency Valuations
As a firm, we believe answering the question “How much is my agency worth?” is part of our responsibility and the foundation of a great working relationship – even if that is further in the future. Because of this we, unlike most firms, offer insurance agency valuations for those who qualify. Click below to apply.
