Skip Ribbon Commands
Skip to main content



 ‭(Hidden)‬ Catalog-Item Reuse

12 Things You Need to Understand Before Selling or Merging Your Agency

​Think for a minute. How many things do you only get to do once in life? Now, think about your exit from your insurance agency.
Sponsored by
12 things you need to understand before selling or merging your agency

Think for a minute. How many things do you only get to do once in life? Now, think about your exit from your insurance agency.

I heard a financial planner say that all business owners will ultimately exit their business one day, either by death, disability or sale. I'm fairly certain all agency owners are hoping for the sale as opposed to the other two options, but selling or merging your agency is truly one of those events you get to do only once—so you'd better get it right.

I went through this process last year, merging my agency with a large national broker. After my experience, I put together resources to help other agency owners prepare for selling or merging their agency. As outlined in my book, “Your Winning Move: An Insurance Agency Owners Guide to Selling Your Business," here are 12 things you need to understand before embarking on this once-in-a-lifetime event:

1) Understand if you are selling or merging. Before you do anything else, conceptually determine whether you want to sell or merge your agency. This is a critical point for a few reasons.

Most buyers want “agency partners," which lends itself to a merger and implies a longer-term relationship. As with most negotiations, your best bet is to start from the other side's position. Understand their wants, needs and challenges and go from there.

Say you have been a buyer in the past and acquired other agencies. Would you pay more for an agency or business whose owner was staying on and continuing to run and grow the operation? Or would you pay more for an agency whose owner was selling and then leave within 60 days? The answer is pretty obvious, you would want the agency partner who stays on, which is the true value of a merger versus a sale.

2) It's going to be a challenge, so lean into it. In fact, it may be the biggest challenge you have ever faced—and maybe the most important. Think about it: If someone is going to pay you $1 million, $3 million, $5 million or more, should it be easy? Knowing it's an arduous process will help you prepare mentally for the road ahead. Go in optimistic. Hope for the best. Plan for the worst. Some deals can take three to six months or longer.

3) Realize that a letter of intent (LOI) is the start of the process, not the close. Many agency owners seem to think that once the LOI is completed, the deal is done.

Wrong. Not all LOIs go to close for a variety of reasons. The LOI period starts the process for both sides to take a hard look at one another as well as the seller committing to exclusivity during this period with the buyer. That means that you, as a seller, will stop talking with other buyers or shopping your deal.

4) Get your financials in order. All deals come down to a financial formula at some level. There's a multiple of either revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) that determines the valuation. That is true in any industry, not just insurance.

Your financials are important. Are they up to date? Are you engaged with the process, or have you outsourced to your CPA for the last 15 years? Get to know your financials like the back of your hand.

5) Communicate well. This seems obvious, but it is a great tip for not only the mergers & acquisition process but business and life in general. If someone from the buyer's side of the deal sends you an email, guess what you should do? Email them back! And in a timely manner—timely can vary from person to person, but, in general, respond by the end of the business day or within 24 hours.

One motto I have shared with our team in the past is that “speed builds trust," especially at the beginning of a relationship. Prompt and effective. That is how you want to be.

6) Assemble a good team of advisers. Most of us have a financial adviser, accountant and even an attorney. Don't use them.

This space is highly specialized. You do not go to the general surgeon for heart surgery, you go to a heart surgeon. Your regular business attorney or accountant are probably not doing regular M&A deals. Who will assist you with the deal and negotiations? Depending on your attorney's skill set, they may be the one to do that. However, it may be wiser to use a business broker or investment banker.

7) Recognize the importance of culture and have a long-term view. Most agency owners will merge their business, meaning they will sell their assets and then stay on for an extended period, maybe five years or more. So, understanding the buyer's culture and leadership is critical. Who will you be working with post-close and beyond? What are they like? Do they care about their people or are they solely focused on the bottom line?

You can vet this when you are interviewing buyers. There's no doubt that larger players have gobbled up hundreds of agencies over the last several years and some have better reputations than others, so ask around. Check with friends or ask for a list of partners or other recent sellers to interview and get the inside scoop. You will be happy you did—or sorry you didn't.

8) Target deal structure and terms. Cash at close. Earnout. Stock. Equity. Finder's fees. Post close compensation. There are all sorts of ways that buyers can incentivize sellers. The most common ways deals are put together include cash at close and earnouts. Cash at close is exactly what it says. How much cash will you get at close? As Rod Tidwell, played so well by Cuba Gooding Jr., in “Jerry Maguire" said, “Show me the money!"

But let's be real, you want money and a lot of it, right? It is OK to say that. We all know it. You would not be in business for yourself as an agency owner if you weren't interested in money. While cash at close may be a very important part of the deal, if not the most important part, dig a little deeper and consider a few other factors.

First off, how much money do you need to live on? Are you at the end of your career? Or are you younger and looking for the right partner? Also, what is the capital gains tax environment like at the time you go to merge or sell? Establishing a good earnout is always an important consideration. Earnouts are usually a form of bonus compensation, based on either revenue or net income growth metrics, after the merger has occurred. Most earnouts occur over three years, which is an important part of the deal. But again, depending on when you plan to retire, this is an important item.

9) Asset purchase agreement and other legal documents. Let's say you've signed your LOI, you've completed your due diligence, and now the buyer is ready to move forward to a close. Exciting, right? This is yet one more milestone in the process. At this point, you and the buyer have formed an initial relationship, there's been an exchange of documents for the due diligence, there is a deal structure summary as outlined in the LOI, and now you just have to put it all on paper and make it legal.

Enter: the attorneys. The buyer's side is likely to prepare the asset purchase agreement, operating agreement, employment or consulting agreement, joinder agreement and other documents, but as we all know, the devil is in the details. I can't stress enough how important it is for you to read these documents. Don't just rely on your attorney to tell you what's in the documents.

10) Post close and integration. Once you have signed and closed the deal, keep in mind that funding may or may not fall on the same day as documents are signed. This is quite different from real estate closings, where signed docs and money exchanges hands on the same day. While the deal may be legally signed, it's not considered final until the exchange of funds occurs.

Funding may be delayed for several legitimate reasons, including the buyer and their advisers being busy with other deals and a variety of other factors. The point is to be patient but persistent. Continue to work with the buyer to get the necessary items to finalize the funding.

11) Communicate with your team. One journey has ended, but now a new journey begins. You considered selling or merging your agency, and you did it. Your deal is closed and funded. Now it is important to communicate with your team as soon as the deal is signed and funded.

If their jobs will change or become insecure, be honest and transparent. Speak from the heart. Explain why you are doing the merger. Let them know the benefits for them. Be prepared to answer questions and know that not everyone will react the same.

You have been thinking, praying and working on this for months, if not longer, but your team is just hearing about it. If possible, set aside time for the buyer to introduce themselves to the team.

12) Account for market conditions. All markets work in cycles. Real estate, financial markets, currency, commodities. And certainly, M&A. We are in a historic period of M&A deal activity. However, we are starting to see signs of cooling. The cost of capital has been exceedingly cheap, but interest rates are rising, and inflation is at 40-year highs. Meanwhile, the Federal Reserve has recently changed course and has been aggressively increasing interest rates, all of which will have an impact on the mergers and acquisitions market as the cost of money is going up.

The independent agency and broker channel offers a valuable product that everyone needs, and has a predictable and steady cash flow. However, it may not always be a seller's market, so be aware of the market conditions. Don't assume you will be able to sell for top dollar, and prepare yourself and your agency well ahead of time when you are ready to make that move.

Doug Levi is chief encouragement officer at Strategic Insurance Services in Pinellas Park, Florida, and author of “Your Winning Move: An Insurance Agency Owners Guide to Selling Your Business." For more resources about preparing for that one-time event, go to

Thursday, September 1, 2022
Perpetuation & Valuation