What is the correct time? Would I continue to work for the acquiring agency? Would I receive all of the cash day one? Would I need to sign a non-compete?
These are all questions that every agency owner mulls over in their head. Many times, after a tough week, loss of a client or deal they thought they had. The reality is that all acquisitions do not look alike.
Deals or acquisitions can take on many different looks. For instance, I talked to a potential seller recently and his agency has been around for 50+ years. He wanted the name of the agency to continue past the sale. For me that was not a deal breaker but probably would be for a national or larger agency that was looking to acquire him.
At Oxford Risk LLC, we are looking for experienced people, who specialize in certain business segments and are looking to grow beyond their current reach. We are not looking at a specific size or type of agency. Some deals could be to agree on a multiple now and when or if the principal needs to get out of the business, they already have an agreed upon multiple for their agency. Insurance companies also like that your agency has a perpetuation plan.
In most cases agencies are looking to sell because that is their perpetuation plan. The question of when is the million-dollar question. In general, you should give yourself 5 years on a deal if you are selling. That is if you think 60 years old is your ideal retirement age, then you should start the process around age 55. Most deals take 6-8 months to put together and most agencies will want you to stay on in some capacity for 3 years or more. Who knows you may like the new role better and elect to stay on even longer. Most agency owners wear many hats and when they sell, they get to spend their days only producing or only managing a sales team.
The last few questions that I have not answered is the non-compete and that is an absolute YES. If you’re selling you need to plan on a non-compete. Most deals provide a portion of the cash at close. An employment contract that provides an agreed salary for a specified timeframe. Most deals also include a claw back or the ability to make more if the business changes over a period of 3 years. This gives the purchaser a plan if the agency loses a bunch of the book over the next few years. It also gives the seller the ability to improve the offer and collect more money if the agency outperforms.
The most important thing to remember when selling is that the deal needs to work for both sides to be successful.
Oxford Risk LLC is currently looking to grow through acquisitions.
Jim Kahoe – President of Oxford Risk LLC (330)315-3082