Deciding whether or not to sell their business is difficult for independent agency owners. One of the first things owners need to consider is where their business stands, Brett Rosen, senior vice president of mergers and acquisitions at Digital Insurance, said this week at the NAHU annual convention in New Orleans.

That takes time, which is something most independent brokers don’t have. However, planning for the future is crucial, Rosen said. “You have to find time to be a strategist,” he said.

That could mean delegating tasks such as account management, Rosen said. Many agency owners don’t make the investment to hire help, he said, either because they become accustomed to handling everything on their own or can’t find talent. Bringing someone else in can help agency owners make the best use of their time, he said.

Standing out from the competition is a good way to attract buyers, Rosen said. “It’s crucial right now to find ways to look different,” he said. But, Rosen said, all employee benefits practice’s need to deliver in three areas: offer traditional employer-sponsored plans, be prepared to discuss and deliver defined contribution plans and offer personal choice. Professional employer organizations are becoming more valuable, and Rosen recommended providing PEO options as well.

Maintaining a healthy prospect pipeline helps add value to a business, Rosen said. “You can never keep your groups forever,” he said. “We all lose cases.” A diversified book of business also increases an agency’s worth, Rosen added.

While there’s much that agency owners can do to increase the value of their business, there are unknown factors that can affect offers. Location is one example. Depending how badly a buyer wants to have an agency in a certain location, they might be willing to make a large offer.

“It’s the Wild West,” Rosen said. “There’s no rules in terms of what you pay, what you sell for, what you do. Whatever you’re willing to ask for and whatever someone is willing to pay.”

A personal choice

Deciding to sell or invest in the business is a personal choice that’s different for every independent agency owner, Rosen said. The owner must decide if they want to build their income or build their equity. It it’s the former, agency owners should consider how joining another agency can help, he said.

Digital Insurance only buys an agency when top producers are part of the deal, Rosen said. “That’s the only way the business stays,” he said.

Digital typically puts the principal on staff and keep around 90% of the other employees, Rosen said. “The goal is to find talent, not just find books of business,” he said.

For independent brokers looking to acquire another agency, they must be willing to make the investment. “You’ve got to be comfortable with debt,” Rosen said. He recommended taking on a debt of no more than two to three years’ worth of profit.

Employment agreements can cause problems during a sale, Rosen said. That’s why it’s imperative for the buyer and the seller to consult a lawyer so both parties fully understand the terms of the deal. 

Also see: Why the Willis, Towers Watson merger won’t be the last

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