Insurance Agency
Valuations For Buyers
The smartest path is to understand exactly what you are buying. Having a plan laid out to incorporate the purchase of a new agency into existing structure is essential. Understanding growth opportunities, values gained, and maximizing profit is the key to success.
A Thorough Analysis
Areas Buyers need to focus on when purchasing an agency for sale are listed below. One should format their own areas of interest, this list is a guideline only. Buyers must familiarize themselves with all areas of agency’s day to day operations.
- Age and employment status of key employees
- Dependency on large accounts
- Dependency on a certain industry
- Age, business life cycle of clients
- Receivable issues
- Quality of insurance markets
- Over-reliance on certain insurance markets
- Non-Standard vs. Preferred Business
- Direct vs. Agency Bill
- Historical growth rate
- Historical profitability of clients for insurance markets
- Agency location, number of offices
- Agency Reputation
- Employee quality and productivity
- Technology platform, age of technology
- Sales management
- Brand and reputation
- Cash/asset management
- Office facility
- Total Premium
- Total Revenue
- Contingent Revenue
- EBIDTA
- Adjusted EBIDTA w/ add-backs
Use Multiples of Value
There are typically multiples that factor into the value of an insurance agency. Those factors are the multiple of:
- Gross Revenue X Multiples
- EBIDTA X Multiples
- Adjusted EBIDTA X Multiples
- Forward Earnings X Multiples
Net Revenue Pays The Bills
The volume may play into the valuation if there is an opportunity for the buyer to enhance the net revenue by getting better commission rates, overrides, or contingency income, but generally, the buyer is focused on the real historic revenue. The discretionary earnings is a pro forma estimation of the total compensation the agency yields to a working owner-operator. Start with the net income of the business and add back the owner’s salary and other compensation, interest on debts, depreciation/amortization and any non-recurring or non-essential expenses to determine the discretionary earnings.
Process Is Key
Every great system requires standardized, time-tested, iterated processes and systems of accountability. Our step-by-step system of assistance takes you through the entire process while ensuring your financial success, peace of mine, and growth.
Learn About
Growing Through Acquisition
Financing an Agency Correctly is one of our areas of expertise.
Allowances
Some allowances are given if certain expenses can be adjusted going forward without impacting the operation of the business. A pro forma (forward-looking) or adjusted (historic) EBITDA is essentially the discretionary earnings minus a reasonable compensation for either retaining or replacing the owners(s). All three multiples might be net of non-commission income depending on the consistency of the income sources.
Market Value
As discussed, understanding the fair market value of an Agency takes so much more than just multiplying your revenue by some widely discussed multiple. Ultimately, an Agency’s fair market value is determined by its sustainable future earning power. In our experience, the agencies that are selling at the highest multiples are the agencies that operate to best practices. These agencies have considered all factors in the operation of their Agency.
Now is the time to make a move
This is the best time to acquire an agency. Interest rates are a historic low along with access to capital.
Insurance Merger Specialists
(678) 540 1111
Info@mergerllc.net