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Agency acquisition begins the acquisition trail by understanding the target agency as well as you understand your own agency. When we assist in the acquisition process, we always strive to learn enough about the agency so that no surprises are left to our client. Most of the time we identify information that the target agency did not know about itself, either.
Agency Consulting Group, Inc. steps in Agency Acquisition:
1. Data Collection Questionnaire – Most agents are too busy doing business to really know their own agencies. A questionnaire, rather than an informal Q&A process, forces them to collect the data and focus on the areas that will permit them (and you) to understand their strengths, weaknesses, and intrinsic value. Many agents cannot complete the questionnaire because they do not know how to get the information out of their files or systems. Be patient and do not purchase an agency that cannot provide you the basic information needed to properly analyze or value it. The questionnaire should include data on the agency’s financial status and history, it’s book of business distribution and loss ratios, personnel, automation, producers, contracts and physical plant. Call us (800-779-2430) to purchase a copy of our Valuation Questionnaire that provides you all of the information that you need to value and analyze an agency for acquisition.
2. Due Diligence – This visit accomplishes a number of things. If the agent could not (or was reluctant to) delve out the information needed from our questionnaire, we can locate that data in the agency. This visit permits discussion with owners and employees (we sometimes identify this visit as an agency analysis for improved operations to allay any personnel fears or suspicions). The strength of an agency is its managers and personnel more than in its book of business. This visit permits us to evaluate those people. We also get answers to issues and anomalies raised from the data collected through the questionnaire.
3. Valuation – We will take the information gathered from the questionnaire, supporting documents and our due diligence visit and create a Fair Market Valuation. Since much of an agency’s value is intangible, the data collected identifies the value of the earnings potential of the business discounted for risk factors that may promote or hinder the agency’s future performance.
4. Negotiations – At this stage, we identify what the buyer desires and try to achieve his goals within the value of the agency to the buyer.
5. Letter of Intent – The result of the negotiations is a Letter of Intent that covers every point of the future contract with the principals initialing every section Note: 6. below is included in the L of I, without which the deal is imperiled.
6. Company approval and Employment Contracts – Two items often left out of an acquisition can lead to crises after the fact. Once the deal is made (signed letter of intent) we achieve employment agreements from each employee and visits are scheduled with the insurance companies to gain their approval of the deal. The companies have the right to withdraw their contracts upon the sale of all (or a significant part) of an agency.
7. Contract – drawn by your attorney, we review the contract to be sure that it contains 1) the intent of the sections of the Letter of Intent, and 2) that the parties are properly protected with non-competition and non-piracy (unique to insurance) clauses. In some cases the contract will contain a “pre-nuptial” clause that pre-determines what happens if the deal sours after the fact.
8. Strategic and Tactical Plan Development – This is the failure of most acquisitions. The deal is made and the transition occurs without a distinct and disciplined approach to capitalizing on the acquisition. The Plan is conducted with the new owners and the key employees and spells out what is expected over what period and how the goals are to be reached including the support mechanisms and marketing methods.
9. Implementation of the acquisition and marketing plan – Sometimes the greatest risk occurs AFTER the deal, when poor implementation causes personnel, customer or insurance company losses. You must guard against laxity in the implementation of the new entity to make the transition seamless at worst and a very positive reflection at best to agency customers, bank customers, employees and company suppliers.
Unfortunately, whether an acquisition is made of a $10 Million revenue agency or of a $250,000 revenue agency, the dangers pursuant to avoiding any of these steps are the same. The litigation costs will be just as severe in the smaller as in the larger instance if the “I’s” are not dotted or the “T’s” not crossed.