2022 Best Practices Study

employees and the unique culture provided by an independent agency were the most important factors.

test the third-party waters, but valuation is the top-of mind factor for most agency owners.

Internal

Third-Party $5,000,000 $1,500,000

Elements to Prospering as a Privately-Held Firm

Revenue EBITDA

$5,000,000 $1,000,000

Margin

20%

30%

People Culture Leadership Specialization Growth Strategy Private Ownership Scale Technology Capital Structure Investment Strategy

43

Guarantee

$9,000,000

$18,000,000

38

Guarantee Multiple

9.0x

12.0x

28

Earn-Out

-

$4,500,000

22

Earn-Out Multiple

0.0x

3.0x

Total Proceeds

$9,000,000

$22,500,000

21 21

Premium:

150%

14 14

Typical Guaranteed EBITDA Multiples

8

12.0x

11.0x

5

10.0x

8.5x 9.0x

7.5x 8.0x

6.5x 6.8x 7.0x

Further, Reagan Consulting authored The Private Ownership Study in 2010. Following extensive research of some of the most successful privately-held firms, Reagan identified four pillars critical for remaining independent. They were 1) healthy operations, 2) reasonable sellers, 3) able buyers, and 4) an effective transfer mechanism.

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: Reagan Consulting Analysis; Quality $3-$10M agencies

Even with these valuation realities, most agencies are focused on remaining private. And why shouldn't they? The future of the industry has never been brighter. The same killer economics available to third-party buyers are available to an agency's current owners. For the vast majority of agency owners who are committed to independence, what are the Best Practices that will allow them to do so? To gain insight into this, Reagan Consulting conducted a survey of 45 independent agent and broker CEOs with average revenues of more than $20M. Reagan conducted follow-up conversations with several CEOs to add additional color. Our primary question was this: "What are the five key elements to prospering as a privately held brokerage firm in today's market?" The responses surprised us. It may be that the economics associated with third-party valuations may not be the whole story when it comes to why so many are selling. Superior, or even competitive, economic returns did not make the list. Clearly, for firms committed to remaining private, providing opportunities for

Capital structure (a proxy for economic concerns) was next to last in the survey. Has something changed materially in the market since the Private Ownership Study was published? We don't think so, but more of that later. Let's focus our attention now on the three primary elements to remaining private: People, Culture and Leadership.

Critical Issues Facing Agencies

16