What will it take to Sell?

[randrew54]

I am a fairly new agent and ever since I first got started I have been mailing letters, making phone calls, sending e-mails and stopping by from time to time independent agents who have been in the business for while to see if they want to sell. I would think with the soft market coupled with the economy and tax consequences at the end of this year several older agents would be interested in selling their books but that doesn't seem to be the case.

[jimmyr1978]

The soft market is the reason they are NOT selling. Their books are down 20%+ and many around here are riding it out. Their investment/retirement accounts are down 25%+ from peaks in 2006, so the financial cushion for retirement is gone. When the hard market hits, there will be a tidal wave of books for sale.

[volstrike3]

There is movement. I suspect something about your presentation or offer is not appealing to them. Do you have the money to buy them outright or are you a green agent that expects them to finance the deal through an earn out. Look at what you are offering and truely have to offer to a sunset agent trying to figure out how to retire and not watch his life's wrok fall apart.

[Rainmaker]

As you will see from the M&A tombstones listed on many firm's sites you will see year over year that this activity is down about 42%. I agree with the posts that the soft market and the corresponding topline compression being experienced by many agency owners, who are seeking the highest price possible for their agency, is a key driver in 'waiting it out' for a period of time to see if things get better. However, I would add that we are seeing many small agencies, specifically in the $200,000 - $700,000 revenue class selling because the topline compression has resulted in their inability to pay operational expenses and they do not wish to use their own private capital to sustain the business. The majority of these transactions are the older baby boomers, ie age 55 and 60+ who are now concerned with preservation of retirement capital, do not have the energy to 'hit the bricks' and generate a lot of new business, and simply to want to take their chips off the table while there is at least something there of value to sell. So for those entities who have a stable platform, and are willing to bring in 'sunset' producers and small agency owners this is a great time to be growing your agency with this kind of model. Frankly, the best time possible I've ever seen and believe it will only continue.

The key is to have a platform onto which you can integrate and onboard these small agency owners. A "Post Transaction Operating Plan (PTOP) is key to success, and we've been developing a lot of those lately for our agency clients which have allowed them to differentiate themselves against others competing for the same business by having a clear plan to present to an acquisition candidate above and beyond the usual, "just trust me I am sure this will work out for you!"

Most of the veterans or 'sunset' producers typically want to work with someone who knows the business thoroughly so they can trust that not only the transaction will be clean but also that they are a good enough operator to integrate their business without a mistake that can cause a catastrophic loss of business and human capital (ie the AM's resigning, etc) as this issue drives whether or not the earn out will be realized. So for a new agent to solicit acquisitions as you are doing, I applaud you for having the 'gumshun' to do so, however, I think you will need to make many, many, many calls in order to find a veteran willing to trust an apprentice within the industry with acquiring their business.

Good luck!

[ticktock]

Could be that you have overestimated the effects of recession..

[mica.cooper]

I would agree with Rainmaker on one point: This is a great time to be growing your agency.

I see many traditional older agencies struggling. I also see a lot of smaller new agencies, less than six years old, growing by leaps and bounds. They are independent, finding new ways to sell, stressing service, and they are hungry. I just joined a number of people switching from Farmers Insurance for my personal needs, why??? Price and service. Independent agents are able to offer the same or better service for a much lower price. (I saved $200 just on auto)

Business is walking from the big companies and its going somewhere. If you can figure out how to capture that flow, you will see remarkable growth. There are companies out there where you can purchase X dates for specific counties, lines of business, and companies. So you could for instance target all people with Farmers, State Farm, Allstate, and American Family renewing in the next 90 days, auto/home, in your county. This will give you a much more targeted campaign.

[Rainmaker]

Hm, interesting comments. Regarding 'over estimating the effects of the recession' I am only stating what we are seeing. No estimate involved (be it over or under) - statement/characterization of what we are seeing across the country.

On the next comment - very insightful and points to an issue that has operated over time consistently - that the younger generation can adopt the new technologies, practices, etc., etc., quite easily and deploy them quickly, and, since they are carving out their place in the world (just as we baby boomers + + + did) they do capture business given their innovative practices and forward orientation.

Yup - I luv 'em.