Selling to an outside party is a popular perpetuation plan among independent agencies. Nearly 30% of agencies would consider selling to an outside party or organization, according to the 2018 Future One Agency Universe Study.
It’s 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 & 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. Here are three ways to make your agency more attractive to potential buyers—for more tips, read Safeco’s new report:
1) 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 a 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 that to remain competitive will need to follow suit.
2) 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 want an agency with strong, growing books of small accounts—whether in personal lines, small commercial business or both—and predictable cash flow. They see less risk compared to an agency that has predominately large accounts because the retention risk is minimized when it’s spread across more policies. That makes for more equity value in the agency, which makes it a ripe investment target.
To build strong personal lines and commercial lines 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 primary drivers of growth.
Also, consider offering specialty products. Specializing can set you apart from other agencies.
3) Consolidate personal lines. Carrier consolidation can have a substantial impact on your agency’s growth and profitability. Consolidating to fewer 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 also be in a better position to maximize your compensation, which maximizes your agency value and attracts more buyers.
Want to learn more about setting your agency up for successful perpetuation? Read Safeco’s new report.
Gary Fischer is senior vice president, IA Channel Growth and Engagement at Liberty Mutual Business and Safeco Insurance.