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This article breaks down the question, “How much is my insurance agency worth” in further detail, but the table below provides a surface-level overview based on varying degrees of revenue and operating expense:
How Much Is My Insurance Agency Worth: A Breakdown
Answering the question, “How much is my insurance agency worth?” essentially boils down to three major steps:
Determine your insurance agency’s EBITDA
Determine the standard valuation multiple for an agency of your size
Multiply your EBITDA by the multiple to determine your expected payout (i.e., the worth of your agency)
Note that a smaller percentage of insurance M&A deals are conducted based on finding a multiple of revenue rather than EBITDA, and an even smaller percentage is conducted based on the seller's discretionary earnings (SDE). We do not include those calculations here because a.) finding revenue (earnings) is already included in calculations for EBITDA, and b.) the percentage is small enough to justify leaving it out. If you’d like more information on how to conduct these calculations, speak with a member of the Sica | Fletcher team here. |
The following sections explain these calculations step-by-step, offering additional insights for insurance agency owners attempting to get an idea of their businesses’ worth.
EBITDA: The Standard Insurance M&A Valuation Model
EBITDA (Earnings before interest, taxes, depreciation, and amortization) is the standard valuation model within the insurance M&A industry. It is calculated using the following formula:
EBITDA=Earnings- Operating Expenses+(Interest+Taxes+Depreciation+Amortization)
Earnings: Net Income
Operating Expenses: The day-to-day cost of running your agency, including salaries, commissions, rent, utilities, departmental costs, etc.
Interest: Money paid toward a loan or debt accrued from delaying the repayment of a loan
Taxes: Governmental income provided through a company’s taxes
Depreciation: Decrease in value of the agency’s assets over time
Amortization: Amortization means paying off the principal and interest on a loan at regular intervals, or the process of accounting for the initial cost of an asset over time
Calculating EBITDA begins by subtracting operating expenses from earnings, the result of which presents a reasonable idea of the agency’s profitability based on core operations. Interest, taxes, depreciation, and amortization are then added to this number. This removes the effects of non-cash expenses on the agency, thus isolating the agency’s profitability because they may be different under the buyer’s management.
The following table provides three examples of insurance agencies (small, mid-size, and large) and what EBITDA might look like for them.
How To Calculate EBITDA: 3 Examples
Small | Mid-size | Large | |
Earnings | $500,000 | $5,500,000 | $30,000,000 |
Operating Expenses | $300,000 | $3,800,000 | $16,500,000 |
Interest | $8000 | $92,000 | $2,475,000 |
Taxes | $50,000 | $450,000 | $2,400,000 |
Depreciation | $10,000 | $110,000 | $600,000 |
Amortization | $15,000 | $175,000 | $900,000 |
Total EBITDA | $283,000 | $2,527,000 | $19,875,000 |
Remember, these are merely examples; your agency’s figures may differ greatly based on your operational spend, the taxes levied according to your agency’s location, or how long you’ve been in business. Consult your own documents when making these calculations, and use the examples in this article only as a template.
Accounting for “Adjusted EBITDA”
Often, buyers will attempt to adjust an initial valuation during due diligence in order to obtain a more favorable deal. Although adjusted EBITDA valuations can sometimes result in a lower valuation, they can also be a double-edged sword for buyers by providing avenues to increase an agency’s estimated EBITDA. For example:
Personal Expenses (i.e., company car, country club dues, charitable donations)
Non-Recurring Expenses (i.e., legal fees, M&A fees, one-time revenue gains)
Recurring Expenses (i.e., below market rent/salaries)
Factors like those above can have a significant impact on your overall valuation. For example, the following table provides a simplified breakdown of a mid-market agency with $4M EBITDA and shows how certain costs adjust the end amount towards which the multiple is applied.
Adjusted EBITDA for Mid-Market Insurnace Agency
Adjustment | Expense (+/-) | Running Total |
EBITDA | N/A | $4M |
Company Car | +$74,300 | $4,074,300 |
M&A Fees | +$1,200,000 | $5,274,300 |
Above Market Salaries | -$116,450 | $5,157,850 |
Business Trips (2024) | +$48,147 | $5,205,997 |
Short Term Marketing Campaign (Loss) | -$22,894 | $5,183,103 |
Adjusted EBITDA | N/A | $5,183,103 |
Note how adjustments can either add to or subtract from the agency’s adjusted EBITDA amount. This makes adjusted valuations a potential boon or bane to both seller and buyer, making it all the more important to have an experienced advisor on your team who can recognize and navigate the more complex negotiation processes for these transactions.
Finding The Correct Multiple for Your Agency
Determining the appropriate multiple for your agency is less a matter of calculation and more of discovery; there are methods to calculate a multiple using your enterprise value (known as your EV/EBITDA), but we strongly recommend against using this method yourself, because it can provide an unrealistic expectation of what agencies on the market actually sell for.
Instead, do some research on what EBITDA multiples insurance agencies are currently selling for and work from that. Generally, most insurance agencies sell for between 5-7x EBITDA, as represented in the table below:
EBITDA Multiples for Insurance Agencies
Small | Mid-size | Large | |
EBITDA Multiple | 5x | 6x | 7x |
Agency owners who wish to keep up with the latest developments on EBITDA multiples for insurance agencies would do best to follow M&A advisors specializing in the sale of insurance agencies. Sica | Fletcher’s own SF Index, for example, tracks the top 40 active buyers in the insurance space, providing up-to-date information on EBITDA multiples and other sector-specific deal information. In addition, third-party M&A institutions like S&P Global Data or Statista can provide more generalized data.
Multiply Your EBITDA By Your Multiple
Having completed all the preliminary steps, the final step is relatively simple arithmetic. By multiplying the agency’s EBITDA by the multiple that most closely matches the size and complexity of your agency, owners can get a sense of how much their insurance agency is actually worth.
For example, consider the following table that details the EBITDA and multiples for three fictional small, mid-size, and large insurance agencies.
How Much Is My Insurance Agency Worth?
Small | Mid-size | Large | |
Earnings | $500,000 | $5,500,000 | $30,000,000 |
Operating Expenses | $300,000 | $3,800,000 | $16,500,000 |
Interest | $8000 | $92,000 | $2,475,000 |
Taxes | $50,000 | $450,000 | $2,400,000 |
Depreciation | $10,000 | $110,000 | $600,000 |
Amortization | $15,000 | $175,000 | $900,000 |
Total EBITDA | $283,000 | $2,527,000 | $19,875,000 |
Multiple | 5x | 6x | 7x |
Total Agency Value | $1,415,000 | $15,162,000 | $139,125,000 |
Sometimes, it can be helpful to consider a range of multiples, especially if your agency falls above or below the average industry value. Consider the following adjustments made for the mid-size agency example in the table above:
Under Average | Average | Above Average | |
Total EBITDA | $2,527,000 | $2,527,000 | $2,527,000 |
Multiple | 5x | 6x | 7x |
Total Agency Value | $12,635,000 | $15,162,000 | $17,689,000 |
As a final comment, readers should note that the “Total Agency Values” listed in the tables above do not necessarily reflect the amount you should expect to receive during a deal. That number is often complicated by what percentage of your payout is cash vs. equity, the timeline in which it is paid out, and additional considerations like post-closing employment agreements or milestone earnouts. Rather, they provide agency owners an answer to the question, “How much is my insurance agency worth?” and connote a generalized value that they can take with them to market.
“How Much Is My Insurance Agency Worth?” Ask an Advisor
Not only will an experienced M&A advisor have a better idea of how your insurance agency will be valued, they can also help you negotiate an even better payout when you take it to market. The team here at Sica | Fletcher has represented thousands of insurance agencies just like yours – with strategic buyers and PE firms alike. Reach out to our team using the contact information below or through the contact page on this website to get more information.
About Sica | Fletcher: Sica | Fletcher is a strategic and financial advisory firm focused exclusively on the insurance industry. Founders Michael Fletcher and Al Sica are two of the industry's leading dealmakers who have advised on over $16 billion in insurance agency and brokerage transactions since 2014. According to S&P Global, Sica | Fletcher ranked as the #1 advisor to the insurance industry for 2017-2023 YTD in terms of total deals advised on. Learn more at SicaFletcher.com.
Contact: Mike Fletcher
Managing Partner, Sica | Fletcher
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