Joe Patrick, 43, became an agency owner at the age of 29 when Larry McCord, former owner of McCord Insurance Agency, Inc. in Cincinnati, agreed to sell to him.
By that point, Patrick had already worked as an underwriter for Cincinnati Insurance Company, a producer for his dad’s agency and a manager at another local firm where “the carrot was dangled with perpetuation and ownership, but it didn’t come to fruition,” he says.
That’s when Patrick decided to call McCord, a connection he made at the annual Big “I” Legislative Conference. Over lunch, McCord made it clear he was willing to “take a chance on a 29-year-old kid,” Patrick says. “He told me, ‘These big guys have been knocking on my door just to absorb me, but I want to give someone the same opportunity my uncle gave me.’”
Amy Bailey, 49, also became invested in the idea of agency ownership within her first couple of years on the job: The agency’s former owner, Ed Starr, promised her a stake when she helped him double his book of business in just three years.
Bailey is the official owner of Starr Insurance, headquartered in Custer, South Dakota, as of 2013. But she has no intentions of starting and ending her career at the same agency.
“I sit in these CE classes with men that are in their mid-70s, pushing 80, and I have sworn that was never going to be me,” says Bailey, who is now grooming her CSR Karen Nielsen as future buyer of Starr. “My goal is eight years—by then, I have 30 years in the industry in my position, and I think that’s enough. I want to be able to always do my clients justice, and maybe after 30 years, I want to try something new.”
Bailey believes that mindset differentiates her from the boomer generation, where principals are less likely to retire on time for a variety of reasons: “they didn’t plan for it, they felt like they still had to work, or they weren’t trusting to give the reins over.”
And it turns out that last one is a major concern for many Gen X agency principals who feel their boomer predecessors may be overlooking them when it comes time to sell their books. In an era of rapid-pace mergers & acquisitions, boomers who are willing to entrust their agencies to rising young stars are becoming fewer and further between.
A few years after meeting her husband at an insurance conference on Mackinac Island, Michigan, Kelly Rice joined him in purchasing his parents’ agency. Without a family perpetuation plan of their own, the couple is now looking to acquisition as a way to solidify their agency’s future—but Rice isn’t so sure local boomer principals will be interested in selling to them.
“I think they feel a certain comfort level with a 55-year-old approaching them about purchasing or taking over their agency, rather than someone who’s in their 30s,” says Rice, 39. “They’re looking at me going, ‘What do you know?’”
And it’s not just perceived inexperience that has boomers turning Gen X buyers away, says Cecilia Fournil, principal of Vista Insurance Group in Columbia, South Carolina. More troubling, she believes, is her inability to compete with “the big boys.”
“I’ve seen one out of hundreds of boomer principals who has listened to a Gen X owner and said, ‘Yes—I want to sell to you instead of Hub or Gallagher,’” says Fournil, 44. “It is all about the money. My generation wants to step up and do it, but I can’t offer a five multiple or even a three multiple. It’s just not going to work that way.”
“If I were to say what’s my biggest concern for the next five or 10 years as a Gen Xer, it’s the ability to stay autonomous as a three-person agency,” Patrick agrees. “The way we’re able to step in is now we’re in our 40s, we’re financially stable, we have the resources, we have the funding possibilities available to do it. But if they’re looking for a one-time check, you’re talking about the huge operations that can afford to do that.”
It makes sense—for boomer principals who are trying to set themselves up for retirement, “you have sunk everything into your agency,” Fournil says. “If option A is giving them $10 million and option B is giving them $1 million, which one you think they’re going to pick? That’s their retirement. We can’t compete with that.”
Selling to a big name is not a strategy that appeals to Patrick, “because of what I would give up as being a small business owner,” he says. “Part of the reason I went into the business was for the entrepreneurial spirit, the ability to right my own ship, to be as successful as I can make myself. Not just be along for the ride, but be the one driving the boat.”
Fournil feels the same way. Even though she started her agency with her husband just 10 years ago, “don’t think we haven’t been called on,” she says. “After the fifth year, we started getting phone calls. I’ve sat down with them and I will say this much: They’ll never be able to be successful in the small business market. They’re too big.”
She’s seen it firsthand—one of her family friends sold his large regional agency to Hub and “made a ton of money,” she says. “But now that he is not a family-owned agency, they are hemorrhaging clients. Those clients are calling us now. We’re one of four independent agencies left in the city that are still individually owned. Everything else has been bought or merged.”
Although Patrick says he owes McCord “a million times more” than McCord ever owes him for that opportunity, “what that did for him was it gave him a chance to retire on his own terms—no big business, no corporate world, no working for a bank,” he points out. “You hear horror stories of boomers who think they’re selling to the bank to be a partner, but they’re just selling to a bank to be an employee. Now, somebody’s telling them when they can take their 10-minute break.”
As former business owners, “boomers aren’t used to that, and then they’re not as satisfied with their perpetuation as they could have been by bringing on somebody with the same culture,” says Patrick, who purchased a second agency, Wilson & Shanesy Insurance Agency in West Carrollton, Ohio, from another boomer principal before the age of 40. “That’s where the two gentlemen who sold to me understood the satisfaction of perpetuation and making sure their clients were taken care of.”
With two successful acquisitions under his belt, Patrick believes he’s proven his clout in terms of how to execute a buy-out. He’s always asking around about potential sellers—“similar-type agencies run by people in their early 60s who I could talk to about coming up with an agreement,” he says. “I’m saying, ‘Hey, let’s think five years down the road, maybe get something put into place so that when you are ready to make that move, you just say now’s the time.’ That way, they’re ready to ride off into the sunset, however they want to do it.”
Moving forward, Fournil has no plans to sell. “I only want to grow,” she says. “I would love to go buy some books of business. I’m trying to follow my business plan I set 10 years ago, but if you go to a boomer, it’s a real difficult conversation.”
For now, Gen X principals are “stuck in the middle,” Fournil says. “You’re going to find Gen Xers everywhere in this industry—we love what we do and we are looking forward to the rest of our careers. But trying to grow has become interesting. We’re kind of beating our heads against the wall on how to do it. It’s all getting snatched out from underneath us.”
Jacquelyn Connelly is IA senior editor.