M&A for agents: The art of making a deal 2023

Volume in the merger and acquisition sector has declined 48% in comparison to Q1 of 2022, and it has declined 27% from Q4 of 2022 according to insights from Dealogic. For many independent agents, M&A is an integral part of their growth strategy, offering a fast-tracked opportunity to expand their agencies through expansion into new geographies, product lines or achieving economies of scale. Fortunately, there still is plenty of appetite for independent agents to succeed in this challenging environment.

The rising cost of financing and challenging economic environment have caused acquisitive organizations to proceed with caution. The good news is independent agencies are well known for their resiliency regardless of the economic outlook, with organic growth for the sector having gone below zero just twice in the last two decades. They are an ideal choice for buyers looking to grow their organizations without the risk and volatility that many other industries experience.

Let’s make a deal

Though the market has slowed, it is still possible for buyers to step in and close a deal in this environment. Consider a few of these best practices when it comes to being prepared:

Organic growth and preparation first. While an acquisition offers the ability to grow quickly, it’s difficult to retain that growth if the buyer doesn’t already have a proven, well-executed organic growth strategy in place. Prior to searching for an acquisition, agents should first ensure their house is in order. They’ll ideally want:

1. robust systems and financial reporting processes in place,
2. a proven retention strategy and a process for delivering consistent double digit new business growth, and
3. a team with the capacity, capability and motivation to run the existing business while integrating an entirely new business.

You also can set yourself apart from other buyers by having expertise in a particular specialty along with an above market retention ratio, a top-notch service team, and an unstoppable sales culture. The key is to focus and prove out a successful organic growth model before you begin to look external.

Utilize your contacts. Agency buyers cannot appeal to agency sellers if their paths never cross. Buyers should consider maintaining a public presence by leveraging their network of colleagues, deal brokers and even competitors. Conferences are a great way to get in front of top industry players and initiate conversation. Another great way to connect is joining a network.

Value. Agents must understand the differences in value applied based upon their specific marketplace and how that’s differentiated across sectors (i.e., property/casualty, benefits, life insurance). Industry publications, relationships with deal brokers and your network are a great way to keep your finger on the pulse of what the current environment is commanding. Agents can obtain a valuation and quality of earnings report to ensure they’re able to stand firm and support their offer.

Playing the long game. Before finalizing the deal, agents should have a well-thought-out plan about what they’d like to accomplish after close. This includes considering how an acquired business would integrate into the agency’s workflow, how roles in both the buyer and seller organizations would shift because of an acquisition and the level of disruption the deal will cause to existing key personnel and their workloads. Agents who know exactly what they are looking to achieve from the process will have a better chance at making a sound deal that aligns with the agency’s needs and culture.

The marketplace is constantly changing. Considering the high level of M&A activity independent agencies have experienced over the last few years, it’s to be expected some agents might consider abandoning their M&A strategies. Those considering such a drastic change should proceed with caution. Valuable opportunities still exist for agents who want to buy or sell and know how to present their business in the best light.

PIA has resources to help

M&A opportunities arise at different points in a business’s history. Through PIA’s Agency Transition Program, association members can get in contact with the right people, based on geographical information provided by participants.

This program offers sellers strict confidentiality, allowing them a choice as to whom they wish to contact. For those looking to purchase an agency or merge with another insurance firm, PIA membership is a prerequisite.

PIA gives members the tools necessary to position your business for future opportunities—whether they are planning to buy, sell or merger.