2017 Best Practices Study

That said, there are compelling arguments in favor of mergers. Done correctly, a merger can significantly enhance the scale, carrier relationships, breadth of resources and growth opportunities for privately-held brokers. An effective merger is based on the premise that the two firms will grow faster and more profitably together than separately, creating more value for shareholders. In today’s M&A market, these benefits are increasingly worth the risk. Below are seven key steps for firms pondering whether to explore a merger with another privately-held firm:

1) Build trust from the start via open and honest communications

2) Conduct multiple chemistry meetings to evaluate the cultural match and organizational alignment

3) Ask the tough questions early to ensure that all key merger issues and firm-specific issues are on the table

4) Avoid the natural tendency to put difficult decisions off until after the deal is closed

5) Work on the key merger issues first and build a framework for the combination around the consensus reached on these issues

6) Obtain valuation, consulting, accounting and legal counsel to assist with the transaction

7) Do not be afraid to walk away if necessary

Agency ownership perpetuation is generally accomplished in one of two ways. Agency owners, as they begin to transition toward retirement or as younger employees qualify to be owners, sell their agency equity internally. This is what is meant by internal perpetuation – equity is bought and sold internally. Or, agency owners can sell their equity to third-party buyers. This is what is meant by external perpetuation. In light of the current M&A frenzy and the record valuations being paid for insurance agencies in sales to third party buyers, is remaining independent and perpetuating internally still a viable option? The answer is yes – we believe that internal agency perpetuation is perhaps the best option available for most agency owners. Even so, internal perpetuation is hard work. It will not happen without solid planning and execution. This section will address three areas of critical importance as privately-held brokers consider their internal perpetuation strategies.

1) Can an economic case be made to perpetuate internally?

2) What are the demographic challenges to internal perpetuation?

3) What financing options exist to support internal perpetuation?

There are myriad great reasons to want to remain privately-held, but in today’s M&A market, can an economic case be made to remain privately-held and perpetuate internally? Agency equity is typically valued using a fair market valuation