Pricing an agency to buy

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Davisbt2
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Pricing an agency to buy

Post by Davisbt2 » Tue Jun 30, 2009 12:40 pm

I am looking to buy a small independent agent with a declining book of business. How do I come up with a price to offer him?

ForumReader1
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Re: Pricing an agency to buy

Post by ForumReader1 » Wed Jul 01, 2009 10:34 am

Base it upon the expected revenue stream. If it's going downhill, it's probably worth less than one year's commissions.

jctwindad
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Re: Pricing an agency to buy

Post by jctwindad » Wed Jul 01, 2009 10:49 am

Few buyers use a multiple of revenues these days. A more common approach is a multiple of EBITDA (Earnings Before Income Tax, Depreciation and Amortization). This is basically pre-tax profit. Common multiples seen today are in the 4 to 7 times range. For a small agency with declining revenues, you would probably be looking at something close to 4x. That would probably translate to no more than 1x Agency revenue, and perhaps less than 1.

Of course other factors to consider are: Carriers to be obtained; Staff to be obtained; Size of Accounts; Type of Accounts (Commercial mix vs Personal); Can the agency be merged with an existing location, or will it be a free-standing agency? etc.

The more desirable the carriers; more experienced staff; smaller average account size (few large accounts, which could be lost); more Commercial business; etc. the more you may want to offer (increase the multiple).

Other factors to be considered would be things like Seller financing at an attractive rate; Are you purchasing the book of business (which can be depreciated) or the agency stock (which cannot).

Keep in mind that however you structure the deal, it must cash flow, and that you can expect to lose an average of 15% of the business each year, so in 6-8 years most of the accounts you purchase will be gone. So, if you can't offset that with new production, you will be in trouble.

scott
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Re: Pricing an agency to buy

Post by scott » Wed Jul 01, 2009 11:43 am

I would not buy or sell a business without professional help. Sure you can do it yourself. However, valuation is a delicate business. There are tax issues too. A pro can bring you insight you have not considered. Having a pro on your side will give you credibility with the other side too.

Use a seasoned firm that works with buying and selling insurance agencies. At least use a CPA so you don't get into tax trouble.
Scott Simmonds, CPCU, ARM
Insurance Consultant

inscopywriter
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Re: Pricing an agency to buy

Post by inscopywriter » Wed Jul 01, 2009 2:16 pm

jctwindad, you have a small error in your definition of EBITDA: it's earnings before interest, taxes, depreciation and amortization, not "income taxes..."

Also, when you refer to 4-7 times EBITDA, do you mean GAAP (current fiscal year) EBITDA or lifetime EBITDA? Where does the 4-7 X guideline come from? If I understand you correctly, that means you'd be paying the agency owner the amount of profit he/she would be making in the next 4-7 years just to acquire the business.

FurriePrincess
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Re: Pricing an agency to buy

Post by FurriePrincess » Thu Jul 02, 2009 11:41 am

I agree with Scott. Hire a professional to assist you. I worked for an agency where they purchased an agency without professional assistance, what a nightmare. Person who "owned" the agency neglected to advise that the producers actually owned a percentage of their book.

sganis
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Re: Pricing an agency to buy

Post by sganis » Fri Jul 03, 2009 9:57 am

If you're looking to hire a professional to assist with buying or selling an insurance agency, check out our website. www.ganisco.com We've completed 16 insurance agency acquisitions in the past 12 months.

There are several ways to determine the value of an agency. We prefer the multiple of earnings method rather than multiples of revenue. If 2 agencies both produce $500,000 in commissions but one costs 200K to operate and the other 400K to operate, are they worth the same?

Feel free to contact us with any questions about your acquisition. All initial consultations are free.

Happy 4th of July!

mhutch69
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Re: Pricing an agency to buy

Post by mhutch69 » Wed Jul 08, 2009 5:55 pm

Stuart,

I have seen your ads re: both collecting debts and more recently, brokering agency acquisitions.

I have a 52 year old non-standard auto insurance agency possibly for sale in Phx. What kind of terms are available and what benefits should I expect?

I have been in this business for 31 years and have bought and sold many agencies.

I am interested in knowing the benefits of possible representation.

thanks,

Mark Hutchings
mhutch69@aol.com

kgibson
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Re: Pricing an agency to buy

Post by kgibson » Thu Jul 09, 2009 1:23 pm

Working with a M&A specialist or organization provides a lot of benefits to both buyer and sellers. First of all, buyers are presented with multiple opportunities and have a chance to see the whole landscape most of which they would have a hard time sourcing on their own. Sellers are provided with multiple interested buyers which affords them the opportunity to get top price from the most motivated buyer. It is not any different than using a realtor to sell your home or office building. You can do it on your own but often times buyers are not willing to buy from a "for sale by owner" listing. Representation just makes everyone involved feel better about the transaction. It provides great value and service as well as piece of mind.

skeefe
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Re: Pricing an agency to buy

Post by skeefe » Thu Jun 14, 2018 12:18 pm

This is really interesting,
I did not realize you could Depreciate a book of business.
How does this usually work? Is it only for PnC books or could you depreciate a fixed book of life and annuity that you purchase?

Thanks you in advance for your help :D

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