Look Before You Leap On Agency M&As

Surprisingly, some independent insuranceagencies and brokerage firms do not do their homework prior toentering a merger or acquisition, and not surprisingly, thehoneymoon is often over before it has begun.

Possibly enthralled by the thought of new beginnings, someagencies allow emotions to replace due diligence, which is akin torearranging deck chairs aboard the Titanic. When such an importantdecision is treated in such a cavalier fashion, choppy water aheadis virtually guaranteed.

Succinctly, much like many modern marriages (because, in abusiness sense, that is exactly what they are) mergers andacquisitions demand pre-nuptial agreements that should bethoroughly thought through and agreed upon before ink is placed onany contractual agreement. This usually involves a considerableamount of give-and-take on the part of both parties involved.

There are specific areas that especially demand extensivescrutiny throughout the negotiating process, with every “i” dottedand every “t” crossed, then checked again, before sailing forth tonew horizons. Such precautionary measures are absolutely andpositively necessary for any organization to protect itself frompresent and future misery prior to steering in new directions.

The areas include:

Transformation and reorganization.

Virtually all acquisitions and mergers mean some, if notconsiderable, redesign of jobs to make them more productive,service-related and satisfying. This also usually means the jobsbecome more challenging, complex and customer-centric. Therefore,the emphasis needs to be placed on training, employee development,and continuous workplace learning during and not afternegotiations.

Whomever becomes the major partner will undoubtedly have one wayof doing things, and the other involved party another way. But whathas worked for one won't necessarily work for the other, at leastnot in all operational areas.

It follows that strong consideration must be given to whatdemands to be changed, and what should remain the same. The purposeis to focus on the customers needs to be served by more productive,and usually happier, employees. This in turn will lead to top-notchservice.

Customer service will improve because most employees are equalto most challenges. And they will meet and often surpass them aslong as they are told why there is a need for change, are trainedand compensated fairly, and kept constantly posted on what is, orsoon might be, transpiring within the agency.

Management.

Management means different things to different people andorganizations, and therein is the hitch. Specifically, if theinterested parties cannot come to a consensus on a managementphilosophy and related practices, it is probably time to endnegotiations. There is no sense in attempting to create a lifelongrelationship if the involved parties agree to disagree with one orthe other, or both, and neither is willing to compromise.

Conversely, and going on the presumption that there is neededflexibility at the negotiating table, those involved in theproposed alliance must target, as part of the desired managementstructure, such important areas as:

1) What needs changing and why it does.

2) Deciding who will be responsible for needed changes within anagreed upon timeframe.

3) The economic outlay, required personnel, possible help fromoutside sources and necessary tools to implement the neededchanges.

Sometimes such basic requirements are not given the devotedconcentration that should be paramount during discussions. Rather,they are tabled for further study and whatever actions deemednecessary after the ink is dry on the contractual agreement. Thatis a bad start and it could lead to disaster.

Technology.

The development of a new endeavor affords a unique opportunityto test timeworn habits of both parties involved in an acquisitionor merger. In the process, especially within the technologicalenvironment, this will often lead combined entities operating underone banner to build new and better bridges to superior clientservice.

This means, of course, that the involved parties must not onlyhave compatible computers, but be on the same page as to what,exactly, is needed to furnish excellent service and how to go aboutconstantly achieving this mandatory ongoing objective. It alsomeans the new organization, and its combined employees, must beable to thoroughly understand any new or updated technologicaloperations which are usually, if not always, part of a newendeavor.

Again, training will probably be needed, and decisions must bemade on how it will be handled. For example, can it be renderedin-house, or would it be preferable to go to an outside managementconsultant or a computer training organization, or both? What is acertainty, whatever route is taken, is that all workstations mustbe focussed directly on the customer.

Related is the mixing of employees with technology. This is anespecially important consideration within a newly combinedorganization where many employees will be meeting new co-workers.Technology can often mean the redesigning of jobs for many, if notall, concerned. The purpose of technology is to facilitate speed ofoperation and ease of doing business.

Marketing.

An acquisition, merger or joint marketing venture brings thechallenge and responsibility of redefining marketing opportunities.What products of the combined entities should be kept and which, ifany, should be dropped? What should be added, and are there newmarketing niches that should be explored?

Such newly-combined organizations also often need a new logo,new letterheads, announcements to clients and prospects, the printand electronic media (both consumer and trade), and, possibly, apress conference. Also usually needed will be new sales materials,direct response campaigns and motivation of the in-house salespersonnel, and, if applicable, the field sales force.

Other challenges that must be addressed during negotiationsinclude the distribution systems and what can be done,above-and-beyond what has been mentioned, to make the new allianceas client-driven as possible.

Establishing a new image.

Will the combined organization have a new name? If so, thiswould naturally call for not only an attractive logo that shouldclearly denote the new image, but an advertising and publicitycampaign to spread the word within the market area.

Even if a new title is not part of the new and combined picture,the reasons for the change, which certainly include the ability tobetter service clients and improve delivery of products andservices offered, calls for an advertising and publicity campaign.And the campaigns must see periodic follow-ups.

Summing up, there is absolutely no doubt that acquisitions andmergers, or a co-op-marketing venture, can be an exciting time forthe involved parties considering such a move. There is the promiseof brighter tomorrows, often creating additional enthusiasm withthe promise of new cash flow that should enable the agency toachieve long desired objectives.

This has, indeed, been realized by some agencies, while it hasfallen short of the goal for others. Often, this is because notnearly enough proper attention was given to some cruciallyimportant areas during acquisition or merger discussions. Simplyput, look closely, and do the required homework, before youleap.

John A. Uzzi is president of Roy W. Walters &Associates, a nationwide management consulting organization servingthe insurance/financial services industry, headquartered inParamus, N.J. His e-mail is [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, April 1, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.