Dealing with the Current Landscape
To our friends and clients, their families, and employees,
We hope this communication finds you all well and home safe.
In looking at the current landscape, it reminds me of some advice we often give to our clients – you never know what can affect the value of your business. We tell them that things can change in a week or a day. How true. None of us predicted something like this happening, and it has certainly affected business valuations.
We have been in contact with several buyers in the marketplace to see what their plans are to get through this difficult time and also moving forward as business gets back to normal. The following are some of the comments from them which we believe represent the agency market as a whole.
1.) Values are hard to define. There are segments of the market that have struggled to stay afloat and will continue to have a difficult time in the short term even when we reopen for business. Buyers don’t like to take risks and many segments are risky at this point. Segments such as Hospitality, Construction, and many service-oriented businesses many not return. Buyers of agencies will still be looking at agencies but the due diligence process will be more in-depth.
2.) Buyers will also try to share the risk more by lowering the multiples paid for agencies. They will also lower the amount paid at closing. They will look closely at the types of business the agency writes and hold back some of the purchase price in the short term until they can get a handle on what the effect this pandemic has had on the industry as a whole. They know revenues and profits will be down. They just don’t know for how long or how much.
3.) Some buyers will sit out for the next 6 months because of the uncertainty. This will create less competition in the short term. That will lead to fewer buyers and lower prices or the buyers will be more selective.
So if you are an independent agency that was considering a perpetuation plan or selling your agency what should you do? Our opinion – You should wait. Now is not the time to consider selling. If you are involved in a process, consider waiting.
What else do we believe you should be considering?
1.) It will be difficult to place a value on your business right now and any buyer that will consider a deal will want you to share in the risk somehow.
2.) Run your business by maintaining your clients. Many of them are struggling but will return to full force right after this has cleared up and the government opens the economy.
3.) Take care of your employees. They will remember what you do for them during this time. Make sure they are taken care of and once we get back on track they will help you keep your clients and hopefully gain more.
4.) Take stock of where you were financially and develop a plan to get back to that level so when the economy opens you will be ready to help your current clients get back on track and show future clients what you have to offer.
5.) Look for the opportunities that might be out there to make sure that if something like this happens again you will be there to help your clients get through the difficult time.
If we can help please let us know. We are here to answer questions, think through the process, or simply be a sounding board. We are only a phone call away!
More from John Biasiello
Now is not the time to sell your agency.
Posted by Sukay & Associates on Thursday, April 2, 2020