Selling to an outside party is a popular perpetuation plan among independent agencies. According to the 2018 Future One Agency Universe Study, nearly 30% of agencies would consider selling to an outside party or organization.
This is an appealing strategy for many reasons, not least of which is the number of well capitalized buyers looking to invest in successful, growing agencies. According to a report from OPTIS Partners, insurance agency mergers and acquisitions activity hit an all-time high in 2017, with 31% more deals than in 2016. The report encouraged sellers to take advantage of the competitive market pricing. But, to get the most for their agency, sellers must understand what these savvy investors are looking for.
Below are a few ways to make your agency more attractive to potential buyers. Want to read more about setting your agency up for successful perpetuation? Read Safeco’s new report.
Grow your agency
Investors look for agencies with steady streams of new and recurring business, so implementing strategies for growth will help you maximize the value of your agency and give you your choice of buyers.
Safeco’s Agent for the Future™ survey found that independent agents want to spend less time retaining and servicing clients and more time growing their business. How do agents plan to grow? Not surprisingly, key strategies include increasing cross-selling, pursuing new lead sources and adding new producers. But agents also plan to add new digital capabilities (48%), invest in marketing (38%), and reach out to new market segments (31%). Agencies wanting to remain competitive will need to follow suit.
Create strong books of personal lines and small commercial business
When investors evaluate a business for purchase, they look first and foremost at the stability of cash flow and revenue. Smart investors look at an agency with strong, growing books of small accounts—whether in personal lines, small commercial business or both—and see predictable cash flow. They see less rate risk than with an agency that has predominantly large accounts, and the retention risk is minimized because it is spread across more policies. That makes for more equity value in the agency, which makes it a ripe investment target.
To build strong PL and CL books, focus on cross-selling and referrals, which will help you deepen client relationships and build loyalty. In Safeco’s recent Agency Growth survey, the fastest-growing agencies in the U.S. pointed to client referrals and cross-selling as their main methods of growth.
Also consider offering specialty products. Specializing can set you apart from other agencies.
Consolidate personal lines
Carrier consolidation can have a substantial impact on your agency’s growth and profitability. In fact, consolidating to fewer, sophisticated personal lines carrier partners can help you increase base commissions and profit sharing, save on operating costs and reduce the number of processes, systems and products your agency employees need to understand. With a focus on fewer carrier partners, you’ll be in a better position to maximize your compensation, which maximizes your agency value and attracts more buyers.