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What is the EBITA?
Buying an Agency..ROI Timeframe?
- Thread starter InsureTexasNow
- Start date
- 882
Well, I've got no dog in this valuation either
But I've sold 3 agencies but bought none....so I can tell you a bit about the selling side & what I'd look for if I was buying.
Captive agencies typically sell for more than IA's. The two Allstate books I sold were right at $2 million in annual Premium. Allstate says they will buy the BOB back for 1.5 times annual commissions.
I've known Allstate agencies to sell between 2.5 & up to 4 x when the market was "Hot." Not rumor, I've seen the signed contracts, known the buyer or seller. Both mine sold at 3 x even after discounting Line 19 [non-standard auto].
I don't buy that a 6 year agency has a 90% retention. One typically doesn't get 90%+ till they have been with the agency 5+ years. That holds for Allstate & SF agencies that I'm aware of.
First year is the worst retention [70-80% depending on how good you are at staying in touch with your clients. This is the time they are most at risk of leaving you]....I'd pay less for non-standard auto then for standard. I'd pay more for an agency that has been around a long time where the agent has been in "retirement mode" as his book will be under-X-sold.
If the agent stays, I'd have her at a minimum salary & a commission that will help her make what she wants IF retention & sales goals are met. The agency is either growing or dying.
At a dubious 90% retention if you have 1000 PIF then you sell 100 in a year to stay even. [extremely easy!] I suspect the real retention has to be more like 20%+ But you want to GROW!
How many policies per household? Greater or less than 2? More policies in a household, greater the retention. Less, greater your opportunity to X-Sale.
Lots more I'd do in your shoes. The clients need to get a relationship with you or when the current agent leaves....you may see your retention go. I'd want a CSR in there with her to start making relationships with the clients so when the "agent" leaves, there will be a relationship with the CSR at a minimum.
Lastly, pump up the sales there with either cold calling or internet leads! You must Farm the existing clients & HUNT for new ones
I've never known an agency to sell for something times EBITDA. Not saying it hasn't, but just haven't heard of it. [Earnings Before Interest, Taxes, Depreciation & Amortization]
P.S. I know a good lead company
But I've sold 3 agencies but bought none....so I can tell you a bit about the selling side & what I'd look for if I was buying.
Captive agencies typically sell for more than IA's. The two Allstate books I sold were right at $2 million in annual Premium. Allstate says they will buy the BOB back for 1.5 times annual commissions.
I've known Allstate agencies to sell between 2.5 & up to 4 x when the market was "Hot." Not rumor, I've seen the signed contracts, known the buyer or seller. Both mine sold at 3 x even after discounting Line 19 [non-standard auto].
I don't buy that a 6 year agency has a 90% retention. One typically doesn't get 90%+ till they have been with the agency 5+ years. That holds for Allstate & SF agencies that I'm aware of.
First year is the worst retention [70-80% depending on how good you are at staying in touch with your clients. This is the time they are most at risk of leaving you]....I'd pay less for non-standard auto then for standard. I'd pay more for an agency that has been around a long time where the agent has been in "retirement mode" as his book will be under-X-sold.
If the agent stays, I'd have her at a minimum salary & a commission that will help her make what she wants IF retention & sales goals are met. The agency is either growing or dying.
At a dubious 90% retention if you have 1000 PIF then you sell 100 in a year to stay even. [extremely easy!] I suspect the real retention has to be more like 20%+ But you want to GROW!
How many policies per household? Greater or less than 2? More policies in a household, greater the retention. Less, greater your opportunity to X-Sale.
Lots more I'd do in your shoes. The clients need to get a relationship with you or when the current agent leaves....you may see your retention go. I'd want a CSR in there with her to start making relationships with the clients so when the "agent" leaves, there will be a relationship with the CSR at a minimum.
Lastly, pump up the sales there with either cold calling or internet leads! You must Farm the existing clients & HUNT for new ones
I've never known an agency to sell for something times EBITDA. Not saying it hasn't, but just haven't heard of it. [Earnings Before Interest, Taxes, Depreciation & Amortization]
P.S. I know a good lead company
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Actually, the math is far more complex than this. You need to start with the retention ratio, add in a percentage of lost policies due to rolling the book and then add in the expected cost to service the book.
The ROI isn't just about what it takes to cover paying for the book, but what it takes to break even and then turn a profit on the book.
I assume this book is for sale because the current agent isn't making any money on the book. Of course, she is covering a lot of overhead that wouldn't be duplicated, so its easier to add these to an existing book and perhaps be profitable, but it does indicate a huge need to look at the book and figure out why its not being profitable for the existing owner. I may be misreading why this book is for sale, but the fact she wants to stay on for a few years makes me wonder....
Dan
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