I have an opportunity to purchase a business friend of mine's P&C agency that has been operating for 3 years. It needs new blood to grow it because he has another agency that he is the sole owner of and more focused with. It is turning only a small profit from what we have talked about. My question is what would be the rule of thumb to use when talking about how much I should purchase this agency for? I see a few things that I have read 1-2 times the gross revenue. Is this correct? I have 3 years experience from the captive side and this would be independent which is what I would choose to do. What are some things that I should look for in the books or questions to ask in aquiring this agency? Thank you for any input!
Purchasing an Existing P&C Agency
- Thread starter superteke
- Start date
- 414
Gross written premium, agency's retention, number of carriers, types of carriers (preferred etc.), and the amount of growth over the years are a decent start.
I think the agency is normally valued by 2-5 times the agency's commissions but don't know if that is a hard rule.
I think the agency is normally valued by 2-5 times the agency's commissions but don't know if that is a hard rule.
- 11,995
That is a VERY high number. 1.5-3 is more like it. Also depends on the type of agency. If it's a small indy shop that is barely turning a profit then I don't see the attraction; you'd most likely be better suited working under a larger shop.
If you do buy the book you should be well funded (at least $25k) for marketing and have a solid plan with multiple methods for growing the agency. You should also have at least one part time support staff or you'll go nuts by being torn in too many directions. Does the office already have support staff? Is their solid agency recognition? Do you know how many of the clients are tied to the agent vs the product (will they leave when the book is sold). How would you finance it? I think you should talk to two or three *local* agents to help you through the process which may or may not even be the right fit for you.
- 415
I worked for the agency that I bought for 9 years. I purchased it over a year ago, it is an IA Allstate...we hav now about 15 carriers but Allstate is over half the book. I paid around 1.75 times and most is financed by the former owner at an outstanding rate. He treated me great...but I had also made him quite a bit of money over the years and we had an agreement that when it came time for him to sell it would be up to me if I wanted it. I know that he could have gotten more $$$ but we still have a great relationship and he is now a life producer with me! I knew he wouldn't be able to stay retired.
The advice I would give is look at your perfered standard non standard. Non standard has no loyalty today and standard preferred you need to look at the persistencey.
If this agency has been there 3 years and is turning a small profit what expenses are you going to have that he doesn't. You said he has another office so I assume he isn't drawing a salary out of this one will you? I would look over the P & L statements see what the gross CXM is and see where the money is going.
Good luck.
The advice I would give is look at your perfered standard non standard. Non standard has no loyalty today and standard preferred you need to look at the persistencey.
If this agency has been there 3 years and is turning a small profit what expenses are you going to have that he doesn't. You said he has another office so I assume he isn't drawing a salary out of this one will you? I would look over the P & L statements see what the gross CXM is and see where the money is going.
Good luck.
- 1,076
There is no proper way to value such a young agency. The terms on a deal like this are much more important than the multiple.
- 24,967
Go away!....
- 1,076
I would not even consider paying 2X revenue unless it was an earn out based on retention with the owner carrying the note for 7+ years. On a new agency that is barely breaking even... There isn't enough money to pay that multiple in a shorter amount of time. For 2X revenue you can get a much, much more established agency.
- Thread starter
- #9
Thanks for all the input fellas. Just now getting a chance to look at the responses. I don't think it is turning much of a profit. It is grossing enough to pay the office manager, rent, and all other overhead. I will not have to put any extra money in it monthly to meet expenses. It does have one full-time employee that will train me and get me up to par if purchased (I want to be able to run it if anything should happen. I am going to pay 1-1.5x what the annual commission are and it will be purchased straight cash. Most of his current companies are nonstandard from what I gather but he will help me to get any contracts that I want as his other agency has a few standard companies and has been in business for 7-8 yrs. I would not purchase if I couldn't get the standard carriers. It currently offers auto, home, and commercial insurance. Initially we will concentrate on auto but also on commercial for less service work. I have the ability to grow it and don't need income from it because I will bring in the financial services (life ins, financial and retirement planning) side to the business and set up the cross-selling opportunities. I currently work from home and will be good for me to have an office as I was planning on getting a store front in the next yr or so. Thanks for the input again! Gives me some good food for thought!
- 1,076
Be very, very careful buying a non standard book of auto policies... find out what the retention rate is over the past 2 years (typically very low). I don't think you will get many cross selling opportunities for financial services with a non standard book. He can tell you whatever he wants about standard contracts but he cannot guarantee that you can get them. What incentive does he have to help you or push very hard if you are paying strait cash up front?
I completely understand the desire to have an office and some revenue coming through the door from the start... but be very careful on how this is structured.
I completely understand the desire to have an office and some revenue coming through the door from the start... but be very careful on how this is structured.
