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Edward Shahnasarian. Credit: THL

Life Health > Running Your Business

Private Equity-Backed Insurance Distributors Are Still Shopping

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What You Need to Know

  • More than 4,000 independent agencies are still out there.
  • One seller turnoff: Weak sales and profits.
  • Another turnoff: Foggy financial reporting.

One of the private equity leaders supporting a vast wave of life, health and annuity agency purchases says the buyers still have cash they can use to make deals.

Edward Shahnasarian, a managing director in the Financial Technology & Services area at Thomas H. Lee Partners (THL), estimated Tuesday, in an email interview, that companies like AmeriLife have acquired about 200 to 300 U.S. insurance agencies and brokerage firms in the past few years.

That leaves about 4,000 to 5,000 independent agencies available for purchase, Shahnasarian noted.

“The majority of the remaining firms could be good fits for acquisition by an existing large, PE-backed platform like AmeriLife,” Shahnasarian said.

What It Means

If you have a successful agency you’d like to sell, you may still be able to find buyers.

THL

THL is an investment firm that has raised about $35 billion in capital and used the capital to invest in about 170 companies. The investment targets have used cash from THL and other sources to make about 600 additional deals with a total value of more than $250 billion.

Shahnasarian has helped THL oversee its relationship with AmeriLife, a Clearwater, Florida-based distributor that has grown rapidly through acquisitions. AmeriLife now has relationships with about 300,000 agents and advisors, and the RIAs in its network have $7.5 billion in assets under management.

AmeriLife competitors include Integrity Marketing, Simplicity and NFP.

Shahnasarian also helps to oversee THL’s relationships with Hightower Advisors, an RIA firm, and Hexure, a company that develops sales and illustration systems for annuity issuers and other types of financial services companies.

He has seats on the boards of AmeriLife, Hexure and Hightower Advisors.

The Agency Deal Universe

For an investor who wants to start out from scratch and build an insurance distribution company through acquisitions, the ideal target is a large, independent company.

“There are not many large platforms left,” Shahnasarian said.

That means that, for now, typical buyers may be AmeriLife and other distributors that already have private equity backing, he suggested.

Over the years, “certain product categories, particularly Medicare Advantage, have become more popular due to the strong secular tailwinds supporting consumer adoption as well as the recurring nature of the sales commissions,” he said.

Seller Dos and Don’ts

Shahnasarian said these are some of the factors that can help an owner who wants to sell make an agency more appealing to potential buyers:

  • High organic growth
  • Consistent and sustainable profit margins
  • A strong leadership team
  • Unique product capabilities or geographic footprints
  • A high degree of recurring or reoccurring revenue
  • A diversified agent base
  • A diversified insurance carrier mix
  • High-quality reporting capabilities and financial data
  • Robust technology systems that are popular with the agents

Shahnasarian listed these factors as potential deal killers:

  • Low organic growth
  • Profit margins that are declining or are unsustainably high
  • A lack of centralized leadership
  • Commoditized product offerings
  • A geographic presence in an area that could cannibalize a buyer’s existing business
  • A significant amount of one-time revenue
  • Any concentration with specific agents or insurance carriers
  • Unusual accounting techniques
  • A lack of consistent or reliable sales or financial information
  • Little to no use of technology within the business

Shahnasarian recommended that agency owners trying to prepare an existing agency for sale focus on driving organic revenue growth while maintaining profitability.

“Try to adopt technology where you can, as it will help to drive both revenue growth and profitability,” he added. “Limit exposure to revenue streams that aren’t core to what you do. Ensure that you keep accurate and robust financials for multiple years.”

Above all, he said, “focus on doing what’s best for the consumer.”

Edward Shahnasarian. Credit: THL


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