The Industry is Changing Quickly

[HoosierLife]

If they bought you but not your upline and then If they moved you to Premier, then would that cut out your current upline? I think that is what Josh is talking about..

Well so far those agencies are still in the same NMOs hierarchy, not IMGs.

So I guess the argument is it doesn't matter. The downline agency that sold to IMG just hands over their overrides.

But yeah, why wouldn't they move to an IMO within Integrity that has the top contract?

What if the NMO won't release without a reciprocal release haha?

 

[goillini52]

Well so far those agencies are still in the same NMOs hierarchy, not IMGs.

So I guess the argument is it doesn't matter. The downline agency that sold to IMG just hands over their overrides.

But yeah, why wouldn't they move to an IMO within Integrity that has the top contract?

What if the NMO won't release without a reciprocal release haha?

Then self terminate your contract and wait 6 months.

This discussion is a good reason not to put all of your contracts with one FMO.

 

[goillini52]

Another one bites the dust. They're adding them daily.

DALLAS — October 30, 2019 — Integrity Marketing Group, LLC ("Integrity"), the nation's largest independent distributor of life and health insurance products, today announced the acquisition of Great American Legacy, Inc. (Great American Legacy), an insurance marketing organization based in Iowa. As part of the deal, Great American Legacy founder Jason Waters will become an owner in Integrity. Financial terms of the private transaction were not disclosed.

"Integrity has shown me a model I didn't even know existed. Partnership opens doors for new growth and expansion to take my business to the next level," said Waters. "After seeing the tools and robust platform Integrity delivers, I realized I have an obligation to join forces because my entire team benefits from this new relationship."

"We look at a lot of businesses, and it's impressive to see what Jason has accomplished," said Bryan W. Adams, Co-Founder & CEO of Integrity. "He has recruited and developed an impressive team rooted in the Midwest and spanning as far as Texas and Florida. With horsepower from Integrity, we have no doubt their sales will continue to outpace the growth of the senior market."

"I've known Jason for 20 years and he understands this industry top to bottom. He is a proven business leader who has built upon a remarkable sales resume and crafted a very successful agency with teams across the country," added Jim Sweeney, American Senior Benefits founder and Integrity Managing Partner. "Integrity will allow him to do more of what he does well – pouring more into his teams and building the leaders of tomorrow."

"It's encouraging to see individuals like Jason who care for and truly have a passion for serving others," said Steve Young, Chairman of Integrity.

 

[Newby]

If they bought you but not your upline and then If they moved you to Premier, then would that cut out your current upline? I think that is what Josh is talking about..

Yes the old upline would lose out. But no different than if you just moved to a different upline without selling.

 

[DigitalBGA.com]

There has been a lot of speculation here about what Integrity is doing. They aren't doing anything special, they are just making a private equity play. BGAs/IMOs have been consolidating for years, but the primary reason has been just internal growth, consolidation of contracts etc. This is exactly the opposite of what is going on here.

Integrity is not buying or merging with BGAs/IMOs for the purposes of production, consolidating contracts or giving them more leverage with insurance carriers or vendors. They are buying up/merging with these companies for the sheer fact that it will increase their own multiple when it comes time for them to sell out in 5-10 years to a private equity firm.

Think of it this way, do you think Integrity is a $10m EBITDA shop? I don't. Do you think they could drive that to $20m in the insurance business as a sole shop? I don't.

All these operations that are being bought up/merged are $500k-$5m EBITDA/profit shops. Each operation individually is not much of an opportunity for a PE firm to acquire. But, when they all merge together they are very attractive to a PE, and their multiple amplifies.

Example: the trading rate of a $500k EBITDA shop is around 4x. Meaning, if my operation profits with an EBITDA of $500k, I can sell my operation for $2m...because that's what it's worth on the P/E market. If my EBITDA is $1m, then it is worth a higher multiple of 5x or $5m. This is simply because PE firms aren't too interested in small revenue companies, they are after the many millions or billions.

So, if my operation EBITDA is $500k, and I merge with a $1.5m EBITDA shop, we effectively become a $2m EBITDA shop, and more attractive to PE. Now our multiple just increased to 6x. So, my operation originally was worth $500k x 4x=$2m, and now my shares in the new merger are worth $500k x 6x or $3m. I just increased $1m in value by merging. Oh, and we continue to operate independently and just push revenues to "new company name" outside of our brands. Each of us owns the appropriate % of the new company based on the EBITDA we brought. So, see all the "Managing Partners" listed here...they are all in this above scenario: Integrity Marketing Group | Team. Each of these "partners" owns a % of stock of Integrity based on the time and stock value of their merger/acquisition close date. Early adopters are going to cash out huge, while the last entrants into the Integrity fold will be less attractive because their own EBITDA will have less of an effect on overall Integrity EBITDA...meaning less stock %.

Now do this with 30 companies, and you get the picture. This is a phenomenal deal for operations in the $500k-1.5m EBITDA range. It is also a great deal for operations that are flatlined and not growing. It is a horrible deal for those companies that are high growth (why would I join when my EBITDA is $500k today, but will be $1m next year?). Disclaimer: I am not using DigitalBGA's numbers in any scenario here, but we fall into the high growth category and a partnership/merger with Integrity would be a horrible deal for us long term.

Side note: do you think Steve Young works for Integrity? Nope, he is the face of the Private Equity firm behind Integrity. He was strategically placed as Chairman for purposes of agency attraction and acquisition. He gives zero F's about insurance, he was just strategically placed in the insurance sector for a few years, and in a few years will move onto whatever other sector his PE firm says to.

Integrity is doing this to amplify their own valuation, and each time they make acquisition of merger stock is paid to the other firm. So, each acquisition like FFL, or NASB is now a stockholder in Integrity full well knowing that in the very near future the entire operation will sell to another PE firm for a significantly higher valuation than each of these partner firms could individually. Then they all cash out their stock and cash in big time. A lot of multimillionaires about to be created here. Mark my words, Integrity will acquire these firms for another year or two and will sell within 5 years for multi billions.

Btw, the going rate of firms with a $20m EBITDA, is 10x or $200m. With Integrity plus 30+ firms, they are likely already there. Their purchasing/merging is not done because their strategy of stock swap acquisitions means they are literally not paying a dime for most of these acquisitions. Edited: I assume some were paid all cash, but the majority were paid on multi-year earn outs + stock.

So again, carriers have nothing to worry about, agents have nothing to worry about and nobody is partnering like this at a high level to somehow control distribution. It is 100% a future acquisition play utilizing M&A strategies that have been around forever. Integrity was just lucky enough to be schooled by a PE firm to go out and make it happen.

-Nic

 

[HoosierLife]

There has been a lot of speculation here about what Integrity is doing. They aren't doing anything special, they are just making a private equity play. BGAs/IMOs have been consolidating for years, but the primary reason has been just internal growth, consolidation of contracts etc. This is exactly the opposite of what is going on here.

Integrity is not buying or merging with BGAs/IMOs for the purposes of production, consolidating contracts or giving them more leverage with insurance carriers or vendors. They are buying up/merging with these companies for the sheer fact that it will increase their own multiple when it comes time for them to sell out in 5-10 years to a private equity firm.

Think of it this way, do you think Integrity is a $10m EBITDA shop? I don't. Do you think they could drive that to $20m in the insurance business as a sole shop? I don't.

All these operations that are being bought up/merged are $500k-$5m EBITDA/profit shops. Each operation individually is not much of an opportunity for a PE firm to acquire. But, when they all merge together they are very attractive to a PE, and their multiple amplifies.

Example: the trading rate of a $500k EBITDA shop is around 4x. Meaning, if my operation profits with an EBITDA of $500k, I can sell my operation for $2m...because that's what it's worth on the P/E market. If my EBITDA is $1m, then it is worth a higher multiple of 5x or $5m. This is simply because PE firms aren't too interested in small revenue companies, they are after the many millions or billions.

So, if my operation EBITDA is $500k, and I merge with a $1.5m EBITDA shop, we effectively become a $2m EBITDA shop, and more attractive to PE. Now our multiple just increased to 6x. So, my operation originally was worth $500k x 4x=$2m, and now my shares in the new merger are worth $500k x 6x or $3m. I just increased $1m in value by merging. Oh, and we continue to operate independently and just push revenues to "new company name" outside of our brands. Each of us owns the appropriate % of the new company based on the EBITDA we brought. So, see all the "Managing Partners" listed here...they are all in this above scenario: Integrity Marketing Group | Team. Each of these "partners" owns a % of stock of Integrity based on the time and stock value of their merger/acquisition close date. Early adopters are going to cash out huge, while the last entrants into the Integrity fold will be less attractive because their own EBITDA will have less of an effect on overall Integrity EBITDA...meaning less stock %.

Now do this with 30 companies, and you get the picture. This is a phenomenal deal for operations in the $500k-1.5m EBITDA range. It is also a great deal for operations that are flatlined and not growing. It is a horrible deal for those companies that are high growth (why would I join when my EBITDA is $500k today, but will be $1m next year?). Disclaimer: I am not using DigitalBGA's numbers in any scenario here, but we fall into the high growth category and a partnership/merger with Integrity would be a horrible deal for us long term.

Side note: do you think Steve Young works for Integrity? Nope, he is the face of the Private Equity firm behind Integrity. He was strategically placed as Chairman for purposes of agency attraction and acquisition. He gives zero F's about insurance, he was just strategically placed in the insurance sector for a few years, and in a few years will move onto whatever other sector his PE firm says to.

Integrity is doing this to amplify their own valuation, and each time they make acquisition of merger stock is paid to the other firm. So, each acquisition like FFL, or NASB is now a stockholder in Integrity full well knowing that in the very near future the entire operation will sell to another PE firm for a significantly higher valuation than each of these partner firms could individually. Then they all cash out their stock and cash in big time. A lot of multimillionaires about to be created here. Mark my words, Integrity will acquire these firms for another year or two and will sell within 5 years for multi billions.

Btw, the going rate of firms with a $20m EBITDA, is 10x or $200m. With Integrity plus 30+ firms, they are likely already there. Their purchasing/merging is not done because their strategy of stock swap acquisitions means they are literally not paying a dime for most of these acquisitions.

So again, carriers have nothing to worry about, agents have nothing to worry about and nobody is partnering like this at a high level to somehow control distribution. It is 100% a future acquisition play utilizing M&A strategies that have been around forever. Integrity was just lucky enough to be schooled by a PE firm to go out and make it happen.

-Nic

Great insight there Nic. Now, what happens to the agencies/IMOs AND agents once the private equity play has been realized?

I get that all the principals are going to get rich, but do they continue to run their shops independently after they're sold?

And some of these groups are growing super fast, like NASB and FFL. Based on what you're saying, why would they sell, unless it's just a Golden Parachute?

And if that's the case, that means all these principals are planning their exit strategy? Again, how could that affect the agents? The folks at the top steer the ship..

 

[DigitalBGA.com]

Great insight there Nic. Now, what happens to the agencies/IMOs AND agents once the private equity play has been realized?

I get that all the principals are going to get rich, but do they continue to run their shops independently after they're sold?

And some of these groups are growing super fast, like NASB and FFL. Based on what you're saying, why would they sell, unless it's just a Golden Parachute?

And if that's the case, that means all these principals are planning their exit strategy? Again, how could that affect the agents? The folks at the top steer the ship..

Yes, they continue to run their shops independently. Since most are not getting paid cash up front, they are on multi-year buyouts meaning they must hit certain production/profits to earn their buyouts. This keeps principals and key employees in play. In 5 years when all of these earn outs expire, you'll see who's left standing and that will be the true tell of what the PE will pay for the whole thing.

What the PE is buying is a single company, that has ownership in dozens of other companies. It is a very well diversified portfolio of companies a PE is getting.

And, I'd disagree that NASB is high growth, and could argue the same about FFL. Production and revenue are two different things...the more people climbing the ladder at FFL means the margins shrink and NASB continues to be a direct mail f2f operation.

Yes, principals are planning their exit just like any business owner would.

I firmly believe that nothing will happen top down for the agents though. Too many contracts in play. Not to mention that these "partners" in Integrity are still in effect competitors. The fact that Integrity is not requiring all these new partners to move contracts, is the sign of this. Plus, there is no way Integrity could go out and get the hundreds of contracts with hundreds of carriers at the top level just because they bought a firm/merged with a firm that has a contract with Bob's Life Insurance Company from back in 1968.

If Integrity is in fact sitting on $2b of life sales, assuming 15% overrides to be conservative, that is approx $300m of overrides...so who know what the EBITDA is on that alone..not to mention annuities, medicare, DI etc.

Again, I think this changes nothing for agents as these firms retain their brands, have multi-year earn outs and need to continue operating and growing.

 

[Todd King]

They own N&F. When N&F write a check, it comes from an Integrity Bank Account.

I guess the way I typed, must have made you misunderstand. I am saying that when Assurity business is written from someone through N&F, Assurity pays N&F, not Integrity. Why? Because that contract does not run through Integrity, that's why.

 

[goillini52]

I guess the way I typed, must have made you misunderstand. I am saying that when Assurity business is written from someone through N&F, Assurity pays N&F, not Integrity. Why? Because that contract does not run through Integrity, that's why.

Are you sure about that? I have Union Security through a FMO that IMG bought. That FMO's Union Security contract is under AIMC, which IMG also bought. Union Security has a bonus on their Med Supps. The bonus is paid by Integrity Marketing Group.

 

[DayTimer]

I'd disagree that NASB is high growth ... NASB continues to be a direct mail f2f operation.

You say that as though DM F2F is the underbelly of the insurance world