Looking for Advice on Buying Existing P & C Business

bmcnola2009

New Member
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I have read several threads and posts, and have gathered some great info on this subject, but I would like to get some specific feed back and advice on my situation.

I currently work in a major bank as a financial advisor and have been in this role for about 18 months (series 7, and 66), but I have been with the bank in another role for close to six years (series 6 and life and health). I have the opportunity to buy an existing p and c firm that has an established book of around 500 policies. The owner is willing to stay on and train me for a few months and poss stay with me as a producer as time goes on. Everything on the surface looks good except his revenue has been declining for the past 5 years. Currently, it is about 130k for 2011, but was 185k for 2010 and it was higher in 2009. This appears to be a great opportunity for me to go out on my own. I would plan on offering financial services as well once the p and c recovered, but my concern is what if the p and c is too far gone? What would be a fair price to pay? I have also never sold p and c ins, but I have experience selling fixed annuities, var annuities, mutual funds, and managed porfolios. Any advice is greatly appreciated.
 
Is it an independent agency or a captive agency, like Allstate,farmers,state farm. If it is, use the search function and see what others say.
 
Captives (except for Allstate) don't sell their books.

The numbers don't make sense, 500 policies usually isn't $130K, not even close, unless there is signficant commercial mixed in. Commercial has taken a BEATING in the last few years, which would explain the decline if thats the case.

500 policies is barely enough to tread water on a good day. You need to think more like 1500 policies, though 500 is a good start. A declining book is a huge problem, you want at least a stable book, preferably a growing book. You need to know why its declining and know for a fact that you can turn that around, or you will lose your shirt.

500 policies is a great add-on to help fuel an expansion. Nothing wrong with getting started with it, just verify the revenue numbers multiple times since his numbers seem very, very high.

Also, when you are starting out, you would usually prefer more policies, more households, rather than fewer policies, higher premium. The only reason for this is you will lose some due to startup and high premium clients are a very tough loss. Losing a $50 commission on a small client isn't that big of a deal.

Dan
 
Captives (except for Allstate) don't sell their books.

The numbers don't make sense, 500 policies usually isn't $130K, not even close, unless there is signficant commercial mixed in. Commercial has taken a BEATING in the last few years, which would explain the decline if thats the case.

500 policies is barely enough to tread water on a good day. You need to think more like 1500 policies, though 500 is a good start. A declining book is a huge problem, you want at least a stable book, preferably a growing book. You need to know why its declining and know for a fact that you can turn that around, or you will lose your shirt.

500 policies is a great add-on to help fuel an expansion. Nothing wrong with getting started with it, just verify the revenue numbers multiple times since his numbers seem very, very high.

Also, when you are starting out, you would usually prefer more policies, more households, rather than fewer policies, higher premium. The only reason for this is you will lose some due to startup and high premium clients are a very tough loss. Losing a $50 commission on a small client isn't that big of a deal.

Dan

Thanks Dan. Thats exactly the advice I was hoping to get. He tells me he has 40-50 commercial policies andthe tax returns show the total revenue. Would that make up the difference in revenue?

Also, I've asked for a customer list several times, and either he doesn't want to show me or he doesn't know. He says it would be difficult because he has so many companies. This is a huge issue for me. I think he is waiting for a purchase agreement before he shows.
 
2.5 x in a declining book is very, very high.
40-50 commercial policies can be anything for any amount. There is no good way to determine an average for these like you can with P&C, so yes, it can make up the difference.

I wouldn't show you a list of customers unless I had at least a letter of intent and a non-disclosure signed. If I were you, I would be concerned about the ongoing viability of those 40-50 commercial policies. It sounds like there are a couple of 'whale' size policies in the mix, if those are not long term viable, the deal is a dud.

Dan
 
Get with a consultant to evaluate the book of business to determine a fair price and pay him on an earn out basis, I would not pay a lump sum for an agency that is declining. I also wonder why've is trying to sell to somebody outside the industry since most good agencies have a long line of willing local and national buyers. you need to really investigate this.
 
2.5 x in a declining book is very, very high.
40-50 commercial policies can be anything for any amount. There is no good way to determine an average for these like you can with P&C, so yes, it can make up the difference.

I wouldn't show you a list of customers unless I had at least a letter of intent and a non-disclosure signed. If I were you, I would be concerned about the ongoing viability of those 40-50 commercial policies. It sounds like there are a couple of 'whale' size policies in the mix, if those are not long term viable, the deal is a dud.

Dan

I have offered to sign a non disclosure, loi, or what ever he wanted. My hunch is that the business is in way more trouble than he is letting on. I passed on buying once before but he has since called back with a lower price. Again, making me think this business is too far gone, but I needed some one with industry experience to help me confirm this. Thanks. Especially Dan.
 
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