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Quite a few articles already detail the process of “how” to sell an insurance agency (you can read our article on that subject here), but very few get to the bare bones of “why.” For that reason, our team sat down and wrote this article, which comprises the advice we give to prospective clients during an initial consultation. If you’re asking, “should I sell my insurance agency,” the three big questions you must answer first are:
Why Do I Want To Sell?
When insurance agency owners ask, “should I sell my insurance agency,” most often they do so because they:
Are planning to retire. Far and away, this is the most common seller motivation we see. The owner is ready to settle down and enjoy their golden years and either a.) doesn’t have any strong succession prospects, or b.) simply wants to settle down and not have to worry about money.
Need funds. Different factors can trigger this need - some sellers have what they see as a rare investment opportunity that they want to take advantage of. Other times, they are hoping to use their share of the sale to alleviate personal debt.
Are looking for a career change. Sometimes, the owner has simply lost their passion for the insurance industry and is ready to move on to new frontiers, leaving the agency in more motivated hands.
These three main reasons branch out into numerous variations of the primary themes. We’ve seen everything, from owners who want to avoid further investment in what they see as a failing agency, to changes in risk tolerance as they approach retirement, all the way to being driven out by competitors. In other words, the number of seller motivations is as numerous as the sellers themselves.
So how do you know if your reason for selling your insurance agency is a good one? The table below outlines a few key criteria that you should consider before going through with a sale:
Should I Sell My Insurance Agency? Personal Considerations
Reason | Explanation | Importance (1-10) |
How would a sale align with your goals? | Would selling your insurance agency actually help you meet your goals? This also applies to the structure of the deal itself - for example, a retiring seller would want to avoid offers that retain them as an employee or consultant. | 10 |
Is your reason driven by short or long-term issues? | We often see sellers who use a sale to solve a short-term problem, but we recommend against this as a general rule. Consider how the sale will affect you in the long-term or consider other options. | 9 |
What alternatives have you explored? | Have you looked at options like a.) restructuring, b.) finding a partner or even c.) outsourcing your responsibilities? Though many sellers often think of a sale as the only way to ease their personal burdens, this is not necessarily the case. | 8 |
What do your advisors say? | A decision this big should not be made in a vacuum - talk with your trusted advisors and see if they think a sale is really in your best interest. Speaking with an M&A advisor to get an outside perspective would also be a good idea. | 8 |
Are you emotionally ready to sell? | Nearly every owner we speak with underestimates the emotional impact of selling their agency, but the attachment to your company – which often makes up a lot of your friends, social life, and day-to-day habits – is very real. Consider whether you are ready to give all of that up. | 8 |
How Much Is My Agency Worth?
Once you feel confident about your personal reasons to sell, it’s time to ask whether selling your agency is a realistic prospect. That may seem like a dramatic statement, but the research doesn’t lie: nearly half the agencies that owners bring to market are not sellable.
This does not stop many owners from trying. And it certainly does not stop less-than-reputable advisory firms from agreeing to represent you and taking their regular retainer fees, despite knowing full well your agency can’t be sold.
As an aside, this is the first of many reasons why you need an experienced M&A advisor like Sica | Fletcher, who will provide you with straight answers from the initial consultation. Contact us if you’d like to discuss an evaluation. |
This is why having an idea of your agency’s worth from the start is a critical part of answering the bigger question, “should I sell my insurance agency?” While we’ve already written extensively on the process of insurance agency valuation, the following sections focus on what to look for in the earliest stages of considering a sale - in other words, what deciding factors to look for to determine whether you should sell your agency.
Considering the Overall Health of Your Insurance Agency
Insurance agencies are like any business, in that looking at a few KPIs can help you loosely measure their overall performance. The table below lists the essential KPIs to look for, as well as a few benchmarks representing agencies in a good/better/best position to sell:
Should I Sell My Insurance Agency: Essential KPIs
KPI | Description | Benchmark | ||
Good | Better | Best | ||
Profit Margin | The agency’s total revenue minus total operating expenses | 14-19% | 19-24% | 24%+ |
EBITDA Margin | A profitability ratio showing the % of revenue converted into operating earnings | 9-18% | 18-29% | 29%+ |
Client Retention | The percentage of clients who remain with an agency following the end of their policy’s initial contract | 65-75% | 75-80% | 80-90% |
Growth Rate | The agency’s YoY growth, as measured by profit margin over time | 4-9% | 9-16% | 16%+ |
Policy Diversity | A measurement of how much of a company’s revenue any one type of policy makes. | 15% | 14-9% | 8-6% |
Carrier Diversity | The total number of different policy carriers that the agency works with | 5-10 | 11-15 | 15+ |
If your agency falls below these benchmarks, it may make more sense to wait a while before bringing it to market. This will give you time to make necessary changes to the operational structure to make your agency more profitable, thus increasing the probability of a higher payout when it goes to market.
What Documents Do I Need?
Once you get into the valuation stage (which is usually done by your M&A advisor or a third-party valuation agency), you will need a formidable amount of documentation. If you are still at the beginning stages where you are asking, “should I sell my insurance agency,” however, there are relatively few required documents. In general, you should be looking for anything that speaks to the KPIs listed in the table above. Examples might include:
Tax documentation
Income statements
Balance sheets
Cash flow statements
Because you want to get an idea of whether or not your agency is profitable, it’s best to compile at least 3-5 years’ worth of these documents to get a picture of your profits – whether they are sustained over time or show significant ups and downs.
Should I Just Represent Myself?
We get asked this question a lot, and our answer is always an emphatic NO. Running an M&A deal is a nuanced process that takes years to understand and even longer to master. Just as you would not recommend that someone coordinate their own insurance policy, we strongly recommend speaking with an experienced M&A advisor before attempting to run a deal by yourself. |
Beyond proof of sustained profitability when analyzing these documents, look for:
Liquid Assets. Having steady amounts of cash/accounts receivable on file demonstrates an observable level of financial stability, as well as being able to cover any short-term expenses the agency might incur.
Manageable Debt. Consider your short-term and long-term liabilities – while it’s not ideal to be in mountains of debt, a solid record of managing reasonable amounts of debt (~15% revenue or lower) offers evidence that your agency’s business model is managing its growth.
A Growth in Owner Equity. Buyers are more likely to respond positively to an agency when they believe that the owner believes in it. Therefore, records of increasing equity over time can be a strong selling point.
Indicators of Scalability. Whoever buys your agency likely has plans to grow it, either as part of their own agency (i.e., strategic buyers) or to resell it for a profit (usually PE firms). Therefore, a scalable business model or records of untapped markets are an ideal feature of any agency going to market.
Looking at this combination of factors should provide you with at least a ballpark figure of your agency’s worth. If you are still struggling to get a good idea of your insurance agency’s value, a good rule of thumb is to calculate your EBITDA and multiply it by 5, then use that as a base amount in discussions with your advisor.
Is This a Good Time To Sell?
The final question to consider – after evaluating your personal reasons and your agency’s financial status – is the market itself. Insurance M&A is a discrete industry, and like other industries, it has its own ebbs and flows. These changes can result from a variety of factors, but the most common are:
Macroeconomic turbulence or growth
Legal or regulatory changes in the insurance industry
The entry of new insurance agencies that change the industry
Technological changes that impact valuations
Changes in policyholder behavior patterns
Such variables may cause an otherwise profitable agency to sell for less than it’s actually worth. Conversely, it also means that an agency that routinely underperforms might sell for a considerable amount, assuming the sale is appropriately timed. There are two ways to get a sense of this timing:
Get a sense of what agencies are typically selling for.
Stay informed about industry trends and regulatory changes.
Valuation Multiples As Macro-Indicators
One of the best ways to determine if the time is right for a sale is to look at what insurance agencies are currently selling for. Insurance agency M&A is conducted using a multiple of one of the following:
EBITDA (Earnings before interest, taxes, depreciation, and amortization) | Revenue | |
Formula | EBITDA = Earnings - (taxes + depreciation + amortization) | Revenue = #policies sold x revenue per policy |
% used in insurance M&A | 90-95% | 10-5% |
What it Measures | The agency’s core profits | The agency’s overall revenue before operational expenses |
Focus | Used by buyer to evaluate the value of the agency as it would pertain to them post-closing | Used by buyers to determine the overall health of an insurance agency |
Best For | Insurance agencies with a steady revenue stream and healthy profits | Smaller insurance agencies with a higher cash burn |
Although there are other methods of valuing an insurance agency (e.g., seller's discretionary earnings, discounted cash flow), they are so rarely used in insurance M&A that we do not include them here. We include revenue in this section, but EBITDA is considered the industry standard.
The best way to find these multiples is through industry reports, which can be difficult because they are either a.) hidden behind a paywall or b.) out of date (multiples typically update every fiscal quarter). We’ve done deeper dives into insurance agency EBITDA multiples already, but here’s a quick breakdown from that article.
Insurance Agency Valuation Multiples at a Glance
EBITDA | ||
Small ($500k-2M) | MidMarket ($2M-10M) | Large ($10M+) |
5.4x | 7.8x | 9.9x |
Revenue | ||
Small ($2M-15M) | MidMarket ($15-25M) | Large ($25M+) |
3.1x | 3.4x | 4x |
Industry trends and changes in the regulatory landscape
The kinds of multiples an insurance agency is selling for, however, depend on what is going on in the industry. This means that owners asking, “should I sell my insurance agency” should also keep a close eye on:
New technologies that might disrupt the market.
New buyers, especially aggressive ones, who are making many purchases at once.
New insurance agencies with original business models that may affect future valuations.
The biggest advantage that paying attention to industry trends has over simply reviewing valuation multiples is the ability to telegraph what might be coming for insurance agency M&A down the road. A multiple only tells you what is - it represents what an agency like yours is currently worth - and you can get an idea of its trajectory by looking at how the current multiple lines up with past ones, although this does not always end up being the case. Macroeconomic changes (like the 2020 pandemic, or the recession in 2022) can have an immediate and unexpected impact on how buyers value your agency, regardless of past multiples.
In contrast, having a thorough understanding of the insurance industry as a whole can clue you into the ways that current happenings could affect future activity. A good way to keep up with shifting trends is to subscribe to a regular publication that monitors and tracks them. You can find these with most major M&A advisory firms (like Sica | Fletcher’s own SF Index) or through third-party monitoring institutions like S&P Global Data or Pitchbook.
“Should I Sell My Insurance Agency?” Let’s Talk.
As our article emphasizes, determining whether or not you should sell your insurance agency is a nuanced conversation that requires a great deal of experience, skill, and foresight to manage and execute effectively. If you are still asking yourself, “should I sell my insurance agency,” one of the best things to do is to speak with an M&A advisory firm and ask them for an initial examination of your agency.
Sica | Fletcher is the first and only boutique M&A firm to manage deals over $1B and we consistently outrank our competitors as the top insurance M&A advisory firm every year. Our team is always available to speak with insurance agency owners to discuss whether or not your agency is ready to go to market, and we can help you develop a plan to get it there. Contact us using the information below or the contact page of this website.
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