If you apply the notion of a chain being only as strong asits weakest link to an insurance agency, companies embarking onmergers or acquisitions would be wise to invest time and money touncover any potential problem points, even seemingly small ones,before a sale is finalized. Although many agency owners start—andfinish—an M&A process focused almost entirely on thefinancials, overlooking or minimizing hidden vulnerabilities can bea costly mistake.

Trouble often arises after an acquisition is complete becausebuyers didn't consider “intangibles.” To avoid second-guessing anacquisition, buyers should ask two simple questions: Do we have theright people? And can we retain and grow the existing level ofbusiness?

Do we have the right people?

In addition to financials, buyers need to determine if they arepurchasing an agency run by people with good business philosophiesand practices or one with a poor reputation. Although sellers mayhave professional personas and nice explanations for wanting tosell, there could be more beneath the surface. To know the fulltruth, buyers need to invest time in getting to know the keyplayers and how they are perceived by stakeholders.

Due diligence with human capital must bethorough. Buyers also need to determine which leaders, producers orkey employees should remain with the business and are likely tostay planted. To do this, buyers should assess each person'semployment track record, character and professional strengths. Theyshould talk with employees about their desired role after theacquisition and how they envision the business functioning andprogressing. 

While no one denies the importance of speaking to as many seniorstaff members as possible, it's also important to learn from middlemanagement and office personnel. Spending time with these groupswill help determine if senior management's depiction of the companyaligns with employee perspectives. By asking questions andobserving staff at work within their areas of responsibility,buyers can understand each employee's strengths and weaknesses anddecide if and how each can contribute after theacquisition. 

Can we retain and grow the existing level ofbusiness?

Retention comes down to three key factors: contracts, customersand service. In addition to carefully reviewing all significantcontracts, buyers should contact carriersto ensure contracts andrates will remain intact and to determine if they can be mergedwith existing contracts for the same or better rates. Attorneys canprovide critical expertise in evaluating and determiningenforceability of all employee-related contracts, non-compete andnon-solicitation agreements, leases, vendor relationships, and anyother contracts.

To guard against customer flight following an acquisition, orattrition later on, it's best to become acquainted with thecustomer base. Identify key customers based on revenue, productpurchases, producer and length of time with the agency. Meet withas many as possible to gauge what their experience has been as acustomer, the strength of the relationship and what theirlikelihood of loyalty is. One of the easiest ways to approach thisstep is by accompanying agents on calls. It's also wise to conductonline research of the agency, competition and region to increasethe chances of finding existing or potential hidden issues.

To continue high levels of customer service that, hopefully,have been the legacy of the selling agency, buyers should have agrasp of how the agency functions, including how it interacts withcarriers. By visiting the agency's offices, buyers can get a feelfor procedures, workflows, software, accounting systems andcustomer service. They can see how relationships with carriersaffect daily operations. 

While this isn't an exhaustive list of what to consider beforean acquisition, keeping a focus on these two key questions willsignificantly increase your chances of success.