Even the “typical” acquisition deal for a mid-size insurance agency or brokerage has many moving parts and needs to incorporate a number of financing options to get done.

But when you add real-estate assets to the purchasing mix, completing the financing puzzle can become inordinately more complex.

This was the challenge recently faced by Springtree Group, a Dallas-based firm that finances and consults on agency acquisitions and mergers (as well as acquiring agencies itself).

Two insurance-industry pros (who requested anonymity) were looking to acquire smaller regional agencies, and they approached Springtree last year.

“They are currently located in the southwestern part of Ohio, and their goal is to buy five or six agencies in the $1 million- to $2 million-a-year revenue range—all in the [Commercial] Property world,” explains Sam Patterson, Springtree Group’s CEO. (The entrepreneurs are still looking to acquire companies that are located in the Midwest, as well as in Florida.)

Springtree Group spent a few months targeting potential acquisitions on behalf of the shoppers and found one whose total sale price was in the $5.5 million range. What made this target company unique was that the building in which it was based was included in the acquisition deal—a fact which significantly complicated matters.

“We launched our process to get funding for [the company] and we ended up having to take the funding in two different directions,” says Patterson.

In a standard acquisition package of this size, where there is no big bankrolling corporate entity involved, three different sources of funding are usually tapped, Patterson explains. “Typically, there is a lender, and then you have some seller note plus the buyer down payment.” (Highly common in small-business acquisitions, seller notes are a form of debt financing through which the seller agrees to receive a portion of the purchase price as a series of installment payments.)

However, this three-component model did not apply to this particular deal because of the added real estate—which required its own additional, separate loan. The target acquisition owned the building, and the primary lender Springtree secured for this deal was only interested in funding the business, not the building.

“That is truly a unique position,” says Patterson. “Having a real estate piece segregated out and having its own loan package attached to it made [this deal] very different.

“You have four different companies—with four different [strategic] directions—being brought together to execute a given transaction, which is relatively unusual,” he notes. “All four of the loan holders have different interest-rate components, different terms on their loans, and different constituents that are managing the loans.”

Getting all four of these different parts to work together to create a financing deal is not easy work, but Patterson says his team was ready to tackle the challenge. “It took quite a bit of cooperation and integration between the borrowing components to make this deal work for these two entrepreneurs,” he says.

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Building the Deal

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