If you’ve been contemplating the sale of your insurance agency, the potential for a recession – even a mild one – along with the added risk of a softening insurance market impacting revenue growth, might make you think twice about selling. Yet buyers are still actively looking for opportunities. In this article, we’ll look at what buyers might be looking for when considering your firm.

Strategic acquirers want to fill in gaps, and build scale

Large national brokerage firms have remained active acquirers throughout 2022 despite a challenging economic environment. Often called strategic buyers, these big national firms are looking to fill geographical holes in desirable markets or add scale in places where adding topline revenue to potential back-office consolidation savings can drive increased margin.

National firms may also be looking at specific expertise your firm may have. Firms with an established specialty program, and wholesalers, have been a focus of big national and international brokerage firms looking to add to their capabilities.

Cultural fit is always another concern for buyers. Mix of business, compensation structure, and expense philosophy will be looked at closely to see how your firm matches up with the buyers’. Your firm will be more valuable and attractive to a buyer executing on its strategy if your firm is a cultural fit and can integrate smoothly with little disruption into the new acquirer’s business.

Private Equity looks for acquisitions that add value

Buyers from private equity (PE) firms, often called financial buyers, are looking to add value to their portfolios. PE firms in general will be less concerned about markets and expense synergies than revenue and profit growth. A PE firm that buys your agency may also be less interested in making significant changes in order to minimize disruption to clients and maximize retention of key producers and staff.

PE firms will be most interested in agencies that have an effective management team in place who will remain with the firm post acquisition. PE owners can then stay focused on financial performance and growth.

Like brokerage firms, PE firms are focused on bigger firms that can make a bigger impact on their financials. The bigger your firm, the more likely you’ll be in attracting the attention of PE firms looking to expand their presence in the property & casualty (P&C) space.

Selling to employees

Several agency owners have successfully sold to their employees using an Employee Stock Ownership Plan (ESOP) structure or other method. Owners who want to sell all or a portion of his or her firm and remain active with the agency following a sale might want to consider an ESOP. Larger firms with strong successor management, consistent free cash flows, and steady performance are likely candidates for an ESOP as well.

ESOPs can be a flexible and creative tool to increase employee retention and productivity, keeping key producers and employees engaged while the firm continues to grow. Selling to an ESOP also wields owners fair market value for their company in addition to providing potential tax advantages and other benefits for both sellers and the business moving forward.

Sale of a minority interest may also be an option

The number of private equity investors interested in making minority investments in firms that have a strong financial performance has grown in recent years. This option can provide owners with access to needed equity capital for growth without giving up total control.

Minority investors may want board representation, and input on key decisions, but a minority investor may provide the capital to grow your business to help maximize value in a later sale. Some PE firms doing minority investments are less interested in maximizing their return through a third-party sale in the future than they are in strong stable earnings distributions. As such, selling a minority interest to the right buyer may provide valuable, patient equity capital to help grow your business to the next level.

If you’re considering a sale

Many different motivations can come into play when deciding to sell your company and determining the best exit strategy can be a complex and stressful challenge. At ButcherJoseph, we help owners work through the process and ensure they understand the full range of options available.

Before starting an engagement, we provide prospective clients with a complimentary feasibility analysis. This free service helps sellers learn more about the structure and the results for shareholders as well as the potential outcome for management and employees if an owner were to sell their business to private equity, a strategic buyer, or into an ESOP structure. As owners weigh their options, this complimentary analysis will help them and their team see the benefits associated with each transaction type, as well as our insights into current market dynamics.