The Heart of the Matter

Tom Cassady Jr.’s agency dates back to 1919, when it started as a Hartford general agency specializing in small commercial and personal lines.

Today, after a number of name changes, bank agency acquisitions and leadership shifts over the last century, Cassady, Neeser & Brasseur in South Bend, Indiana belongs to The Horton Group.

When the time came to sell, Cassady, branch president, wasn’t sure how to break the news to his father—the original Cassady in the operation. “My biggest worry was telling my dad we were selling,” Cassady says. “He’s 87 years old and hasn’t been involved in the operations of our business for 15 years, but he still comes in to the office every morning. I sat him down the day before we were going to announce it to the employees. To my surprise, he said, ‘That’s great—how do you think we got where we are?’”

Wise words from an industry veteran, vocalizing a growth strategy many independent agencies are adopting in order to perpetuate their firms. But whether you’re buying or selling, an agency acquisition can be an uneasy time for agency leadership, staff members and clients alike. Here’s what you need to know to thrive in the aftermath of an acquisition.

Internal Combustion

Before even entering into the acquisition process, sellers must realistically ask themselves: What’s my reason for selling?

“If it’s all about maximizing the amount of money you can walk away with and you’re not going to stay, you have to accept the fact that the buyer has to make a return for what they’re going to do and it’s going to really impact your employees,” Cassady says. “You have to make a decision in your mind that you’re selling your business, it now becomes somebody else’s and your No. 1 priority is not your employees.”

On the other hand, “if you have good staff, you care about them and you see them as partners over the years, then recognize you’re going to pick a partner who’s not going to pay you as much money, because they’re going to be willing to accept some of those things,” Cassady says.

If you decide your staff is a top priority, make them feel like they’re part of the process. “When I realized we were getting close, letting my management team know what was going on was really one of the most important parts,” says August Felker, CEO of The Murphy Insurance Group with locations in Wisconsin, who recently sold his 50-employee p-c and employee benefits agency to HUB International.

“I had to make sure they were bought in, felt good about it and were committed going forward.”

Other staff members will be the last to know, but transparency is still vital. “The most important thing I’ve learned is you have to have complete open and honest communication with your employees,” says Cassady, who held one-on-one meetings with every single employee within 24 hours of making the acquisition announcement.

“We went through the process of what we anticipated would happen to that employee in the next 12 months,” Cassady recalls. “If we felt that employee was not going to have a job in 12 months, we had already figured out a severance package for that person. We’d say, ‘You’ll have a job for six months, but I can’t tell you after six months whether you will have a job.’”

For the staff you keep, “you want to respond on a compensation and benefits level,” says Glenn Horton, CEO of The Horton Group in Orland Park, Illinois, which has performed close to 30 acquisitions over the past two decades, including Cassady’s agency. “We very carefully go through literally every employee and say OK, this is what they would be paid with us, this would be their benefits with us, and if there’s a difference to the downside then almost always we’ll try to make it up. If our benefits are different, we might give them a compensation increase.”

“You’ve had your big speech, you’ve told everybody the great thing that’s happening and why you think it’s great, but actions speak louder than words,” Felker adds. “The best thing you can do is be extremely present, meet with your key people regularly, be in the office, be available and have your door open.”

For buyers, the most important group of employees is those that could affect business retention. “If you don’t retain the business in an acquisition, then you just bought a bunch of furniture—and I can buy cheaper furniture,” Horton says. “The biggest asset you have in the company walks out the front door every day and they don’t have to come back.”

That’s why during an acquisition, The Horton Group carefully assesses producers who might not be agreeable to sticking around, “or who might be able to take business if they walk,” Horton says. “That’s where we’re really focused in the due diligence period ahead of the acquisition. Anybody with a significant book has to be in on the deal ahead of the public announcement.”

The Public Face

Clients might get antsy when they hear about an upcoming acquisition. But generally speaking, as long as their point of contact remains the same, “they really don’t care,” says Cassady, whose team met with all their larger clients in the month before closing to discuss the transition. “If the same people are there for them, it’s not a huge deal, as long as you can still live up to what you promise them and continue to earn their business every day just like you did before.”

“When I called and reached out to some of our key clients afterwards, the first question they had was, ‘Is my team still there?’” Felker agrees. “It’s important to let clients know what’s going on and be transparent, but also give them some peace of mind.”

The real challenge might come from your competition. “Our competitors are always trying to call on our accounts, and they tried to turn [the acquisition] into a negative,” Felker says.

Cassady tackled the problem head-on: “I called our biggest competitor personally, the president of the agency, to let him know so there wouldn’t be any miscommunication,” he says. “Your competitors are going to try to use this against you, but as long as you’re telling your clients the truth and your competitors know that truth, then you’re all dealing with the same information. If a client doesn’t like it, at least it came from us.”

It helps to emphasize the positive reasons you decided to sell in the first place. “Obviously, we felt when we partnered with HUB that it was only a positive,” Felker says. “One, the team was still going to be there and two, we were going to have the backing of a bigger agency to better serve our clients. We’ve had clients ask us things in the past like, ‘Can you guys do a deeper analysis on our employee benefits costs?’ Or ‘Can you do a better wellness program?’ Or ‘Can you offer more risk management?’ Those are the exciting areas where we get to bring in HUB and leverage their skills.”

For True North Companies, headquartered in Cedar Falls, Iowa, balancing the local relationships an independent agency has built with the capabilities and services it’s able to provide as a larger company has been a key strategy driving revenue growth from $9 to $55 million—$15-20 million of which derived from acquisitions.

“We’re trying to marry the local hometown agent with enhanced offerings and protection of their opportunities,” says Duane Smith, president and principal. “One of the focuses we have in our M&A strategy is finding that 40-year-old agent who has a $2 or $3 million shop and 20 people—they’re the CEO, the CFO, the COO, the sales manager, the producer and the bottle washer, they’re working 80 hours a week and they’re ready to throw their hands in the air.”

For those agents, “what we bring to the table is markets, systems and specialization,” says Smith, who founded True North in 2001 with five other partners to give younger insurance professionals the same opportunities they had. “If they want to get through that ceiling of complexity, then we provide the playbook.”

Not sure your clients are convinced the acquisition was a good idea? About 12 months after the acquisition, Cassady’s agency also circulated a one-question survey among all its clients, asking if they’d recommend the agency to someone else. “Any survey that came back with a negative response, I or our director of operations called that person to find out what was going on,” Cassady he says.

The Head vs. the Heart

For Cassady, letting go of his family name on the agency’s welcome sign was one of the most difficult parts of the selling process. When the agency hired a marketing firm to assist with the transition, they asked who in the organization would be the biggest hurdle to overcome if they decided to change the agency’s name.

“I said, ‘Let’s just be honest—it’s me,’” Cassady says. “We had a whole group committee that made the decision to change the name, and it kind of hurt a little bit, because names matter so much. But it doesn’t matter to your clients.”

The numbers agree. Cassady’s agency experienced 7.4% organic growth in the first year after selling to Horton and another 7.4% in just the first six months of 2015. “When something finally causes you to make that decision to merge, sell or join a larger organization for whatever reason, you say to yourself—I’m the perfect example—‘I wish I had done this 10 years ago,’” he says.

On the buying side, the biggest challenge is equally subjective: making sure the agency in question is a good fit [see sidebar]. “Up front, before you write the check, you need to have a very clear understanding of what the organization is going to look like when you bring the two together,” Smith says. “Culture is as important in our firm as profitability and sales. If you’re a $3 million producer with a 28% profit margin and 15% growth but you’re a cultural terrorist, that doesn’t cut it.”

“You have to make an assessment of whether you’re getting together with people that you really want to work with,” agrees Horton, who compares acquiring an agency to hiring a new employee. “If you hire a bad person, you can fire them. If you do a bad acquisition, you’ve got $4-5 million tied up in it. It’s inevitable that there are going to be issues that have to be worked out, and if you’re working with jerks, you can’t work out the issues.”

Jacquelyn Connelly is IA senior editor.