Insurance Agency Valuations For Buyers

AGENCY VALUATIONS

The smartest path is to understand exactly what you are buying. Having a plan laid out to incorporate the purchase of a new agency into existing structure is essential. Understanding growth opportunities, values gained, and maximizing profit is the key to success.

A Thorough Analysis

Areas Buyers need to focus on when purchasing an agency for sale are listed below.

One should format their own areas of interest, this list is a guideline only. Buyers must familiarize themselves with all areas of agency’s day to day operations.

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Age and employment status of key employees
Dependency on large accounts
Dependency on a certain industry
Age, business life cycle of clients
Receivable issues
Quality of insurance markets
Over-reliance on certain insurance markets
Non-Standard vs. Preferred Business
Direct vs. Agency Bill
Historical growth rate
Historical profitability of clients for insurance markets
Agency location, number of offices
Agency Reputation
Employee quality and productivity
Technology platform, age of technology
Sales management
Brand and reputation
Cash/asset management
Office facility
Total Premium
Total Revenue
Contingent Revenue
EBIDTA
Adjusted EBIDTA w/ add-backs

Use Multiples of Value

There are typically multiples that factor into the value of an insurance agency. Those factors are the multiple of:

Gross Revenue X Multiples
EBIDTA X Multiples
Adjusted EBIDTA X Multiples
Forward Earnings X Multiples

Net Revenue Pays the Bills

The volume may play into the valuation if there is an opportunity for the buyer to enhance the net revenue by getting better commission rates, overrides, or contingency income, but generally, the buyer is focused on the real historic revenue.

The discretionary earnings is a pro forma estimation of the total compensation the agency yields to a working owner-operator.

Start with the net income of the business and add back the owner’s salary and other compensation, interest on debts, depreciation/amortization and any non-recurring or non-essential expenses to determine the discretionary earnings.

Process Is the Key

Every great system requires standardized, time-tested, iterated processes and systems of accountability.

Our step-by-step system of assistance takes you through the entire process while ensuring your financial success, peace of mine, and growth.

Financing an Agency Correctly is one of our areas of expertise.

Learn About Growing Through Acquisition

Allowances

Some allowances are given if certain expenses can be adjusted going forward without impacting the operation of the business. A pro forma (forward-looking) or adjusted (historic) EBITDA is essentially the discretionary earnings minus a reasonable compensation for either retaining or replacing the owners(s). All three multiples might be net of non-commission income depending on the consistency of the income sources.

Market Value

As discussed, understanding the fair market value of an Agency takes so much more than just multiplying your revenue by some widely discussed multiple. Ultimately, an Agency’s fair market value is determined by its sustainable future earning power. In our experience, the agencies that are selling at the highest multiples are the agencies that operate to best practices. These agencies have considered all factors in the operation of their Agency.

Now is the time to make a move

This is the best time to acquire an agency. Interest rates are a historic low along with access to capital.

Help Me Buy an Agency

(770) 825 6268

greg@jghconsulting.com