Perpetuate Your Agency Through An Acquisition By A Bank

By Gerald C. Vigneron

Some agents sell their agencies to fund their retirement. Theyve toiled for decades to build a strong, vibrant organization and want to take their equity out while having the agency continue to thrive under the new owners.

But many sellers arent retiring. They believe that to take their company to the next level, they need to partner with a bigger organization that can afford to invest in marketing, support staff, producers and technology.

Whether youre planning to spend your later years golfing in Florida or working hard as ever, selling your agency is an involved process. Youll want to make your agency as attractive as possible to potential buyers, such as a community banks, so you can get a fair price and attract a high-quality, financially sound bank as buyer.

A savvy banker will hire an expert consultant to evaluate your agency before making an offer. The consultant will listen when you say you have a well-run, thriving agency but will need detailed written proof, too.

Many agents dont have all their business records in one readily accessible place. When asked for a document they say, “Ill have to look for it,” “Ill have to get it from my accountant,” “I think that information is at my home” or “Weve never tracked that.” This doesnt make a good impression.

If youre planning on selling, get your paperwork together before talking to the banker or consultant. To put your best foot forward, assemble the following documents:

A brief history of your agency, including any acquisitions youve made and a description of your office automation.

Well-organized, up-to-date financial records that document the growth and profitability of your agency. These should include your agencys federal tax returns for the last 3 years, a balance sheet prepared by an accountant and W-2s and 1099 forms for all employees and independent contractors.

Production reports and market information. How much premium did your agency bring in from individual life and health insurance, employee benefits, financial products and personal and commercial property-casualty insurance? Do you have a niche market? How much premium did you place with each of your top companies? Is the business you produce profitable for your company? Does your agency accept business brokered by other agents? If so, how much?

Marketing information. Does your agency have a written strategic growth plan? This is one indication of your readiness to fit into a larger organization and become a team player.

Ownership and personnel records. How much did the owners make last year in commissions, salary and bonus? List reimbursements for travel, club memberships and other expenses. If you have a partner, do you have a buy-sell agreement? The bank will want to see a copy. Youll also need a list of your producers and a copy of producer agreements. Provide a list of all employees, with their salaries and benefits.

Legal information. Is your agency a corporation, partnership or proprietorship? Have there been any lawsuits or errors-and-omissions claims filed against you? If so, provide details.

Why Sell to a Bank?

A community bank can be an excellent buyer and business partner. Generally, agents do best selling their firm to a local or regional bank with strong roots in the community instead of a national bank that has a less intimate relationship with its customers.

Community banks offer these advantages:

Financial strength. If you sell your agency to a strong, well-run bank, you dont have to worry about getting paid. Few other potential buyers can offer sellers such peace of mind. And because banks have the money, they can afford to pay a fair price for your agency. Industry statistics show banks on average pay a significantly higher price–sometimes almost twice as much–than do other buyers such as other agents or large insurance brokers.

A strong base of loyal customers. The banks customer list includes thousands of families and local businesses that need insurance and investment product. Its a potential gold mine for an insurance agent!

Accessible senior management. A typical community bank is big enough to provide financial clout and infrastructure but small enough so that you can talk to the people at the top whenever you need to.

Commitment. The banks CEO should make it clear to all managers and staff that insurance success is a top priority. And look for a banker who realizes that he doesnt know as much about selling insurance as insurance professionals. Most community bankers know this and see their role in insurance as serving as the head “cheerleader” and letting the agents entrepreneurial zeal flourish.

Should you sell your agency to a bank? Its a highly personal decision, but if you are considering selling, why rule out an entire class of buyers? One of the nations 8,000 banks may be the right partner for you. Since there are many more insurance agencies than banks, if you delay too long, the bank may acquire another agency and your opportunity may vanish.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 5, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.