Every month Agency Consulting Group, Inc. has received several calls from well-intended agents asking for our help buying other agencies. If they have agencies now, they have struggled with the question, “How can I acquire agencies?” There are agents that may have attempted to buy one or more agencies unsuccessfully. Or they may not currently own an agency and can’t figure out how to find and approach an existing agency to offer to buy them. The commonality among all of these potential acquirers is their willingness to take the financial risk of buying an agency, either with their own money or by borrowing money.
My first question is always, “Why would an agent want to sell to you??” The answer always is, “I have the money to buy it,” or “I’m willing to get the money to buy the agency”, or “I want to own my own business.”
Notice, that the answers are non-responsive to the question. No one has thought of why a SELLER would want to have that particular buyer take over their agency!
In fact, it is more important in acquiring agencies to concentrate on the reasons agents sell than in the reasons you might want to buy. If you concentrate on these reasons, you will find yourself much more selective in your screening process (and much more successful in your acquisition trail).
Here are the “Top 10” reasons that agents might be willing to sell their agencies:
10. They are burned out. This is rarely the only reason an agent sells, but it is a contributing factor along with any number of the following other reasons that an agent might be ready to sell.
9. Lone Ranger Production– These are the agents who have been carrying the production responsibilities of the agency on their own shoulders. They either have incompetent, RIP (Retired In Place) or non-productive producers (or have never had any real producers) and the agents, themselves, are simply tired and know they cannot sustain retention or growth for much longer.
8. Personal Problems – Death of a spouse, divorce, mid-life crisis, empty nest – these are all reasons that an agent’s “oomph” for the business may wain.
7. The agent is too small to be profitable, can’t support his carriers, or has opportunities but needs markets that he can’t get on his own. These agents may be younger than retirement age but need to be acquired or merged in order to progress their careers.
6. Partners who hate each other – they fell out of “love” years ago but the situation has become so intolerable to one or more of them that sale is preferable to continuance.
5. The finally realize that they can’t manage. Agencies grow around agents. Unfortunately, many of these agents may be good (or adequate) salespeople, strong (or adequate) technicians, but not particularly good at managing other people. The longer they do it and/or the larger they get the more they hate the managing side of their business until being acquired (or merging) to take them out of managing sounds really good to them.
4. Retirement – Whether by loss of health or or loss of the “heart” for the business, some agents actually want and expect to retire into something else or out of the insurance business.
3. Getting their asset value out of the business – You don’t have to retire in order to need or want the asset value an agent has built in his agency. While an agency is never worth a multiple (of anything) as a formulary for value, every agency certainly has a specific value based on hundreds of variables. Some agents realize that they can still work and earn a good living even after they cash out their value to benefit them in some other aspect of their lives.
2. Some agents actually want to get back to selling! It doesn’t matter whether the agent has been making money or not. At some point in the career, they realize that they are no longer HAPPY. They may be financially sound, but they loved the selling (and the servicing process) and they haven’t done either in years. An agent who realizes that may be ready to sell the agency or to merge in order to get back to what he loves instead of what he “must” do to make the agency successful.
1. The most prevalent reason for an agent to sell his agency is that he is not making money. Sometimes profitability decreases because costs continue to rise and revenues are diminishing. Agents with older staffs find themselves unable to take the steps necessary to trim staff in accordance with changes in revenue or enhancements of technology. Sometimes it takes an acquirer to do that which the former owner should have done to return the agency to profitability.
If you desire to purchase an agency for any reason, it would be wise for you to concentrate on the reasons that particular agents SELL instead of reasons you want to BUY an agency. Every agency for sale can have 10 or 15 suitors if they look for them. To the degree that you identify one or more of the “Top 10 List” above in potential acquisition candidates you will stand a much better chance of succeeding in your quest. The more reasons you find in any candidate the better the chance of a successful acquisition. The more reasons in the more important categories (the single-digit Reasons) the more likely and faster the transaction.
But the reason we get so many contacts from potential buyers is that, while they feel they can obtain the needed funding for an acquisition, they don’t know how to find them.
The answer is simple to explain and difficult to execute. Unless an agent simply wants the most money possible for their agency and doesn’t care to whom it is sold, you must create a trust relationship with any agent with whom you desire to create an association. And that relationship involves personal visits and a friendship. Business brokers will try to advertise for and refer any number of potential associations to a buyer. However, most insurance agents consider the transfer of their business more like transferring a family pet than transferring a building.
When transferring a building, you really don’t care to what use it will evolve – just that it is sold for a fair price. When transferring a business like an insurance agency, you are transferring relationships with employees and with clients, many of whom have become friends and who you fully expect to see again after the sale (unless you are dying or moving out of the area). Of course there are some agencies in which few relationships exist. These are the Enterprise Businesses that build a trade because they have the right markets and are located in a convenient location (like a dry cleaner or drug store). As long as those businesses continue to operate as before, they are expected to yield the same results as their history has reflected.
However, when transferring an insurance business whose relationships with clients have evolved from personal trust relationships with the agent or staff, it is critically important to maintain those relationships for the value of the agency to be warranted. The agent is often very concerned that the employees and clients be treated properly because he will still be around to gain their ire if his sale of the agency results in a lesser relationship or service for his client/friends. For that reason most agents want more than just a fair price (although that is still important). They want to know that they are leaving “their” business in trusted hands and that their clients and staff will be treated well and fairly.
This is the reason that sellers need to be comfortable with a buyer’s history, capability and ability to manage the agency. When you seek the acquisition of an agency, MAKE FRIENDS with the prospects and visit them often to build a relationship. Your agenda is to determine how many and which of the Top Ten reasons affect the agent in question. You want the other agent to be comfortable enough with you that when he feels the need to transfer the agency, he thinks of you first. You may certainly use consultants like us to penetrate an area to find which agents are considering the sale of their business, but it is still your job alone to establish the trust relationship that will make the target agent comfortable dealing with you as a buyer.