In the midst of the recent record-setting merger-and-acquisition activity among insurance agents and brokers, you may have pondered: Should we consider selling the company, and if so, how can we best prepare to maximize our valuation?

Regarding the first part of that question, it depends on when you need to make your exit — especially if you don't have a younger generation to buy the agency from you. If you plan to leave the business within the next three to five years, consider selling now to capture the current top-tier valuations.

If you plan to be around longer than five years, selling now — even at the current elevated valuations — is likely not your wisest financial move. Even so, think about engineering a transaction a couple years before your exit in case external factors become a sales impediment. However, if your company needs certain market resources that can be obtained only by selling to and partnering with a larger, more robust organization, then you need to pull the trigger sooner.

Where to start

Notwithstanding when you sell, you will need to focus on some issues immediately to maximize your valuation. Begin with cleaning up your balance sheet and income statement.

On the balance sheet, pay particular attention to the trust-fiduciary, trade receivables and trade payables accounts to ensure that they are in balance. In addition, remove all non-operating assets, including loans due from owners. Pay off or pay down debt as quickly as possible.

On the income statement, eliminate or clearly isolate non-business expenses, and limit non-deductible expenses to the greatest extent possible. Potential acquirers know that your actual financial results will be adjusted for these items to derive the earnings that will be the foundation of your valuation. Isolate and define non-recurring post-transaction expenses, such as legal or other advisory fees related to the transaction. This will produce your truest income statement, which should increase your firm's valuation in the sale.

Remember to also get all of your corporate records, minute books, stock certificates, certificates of authority, licenses, permits and related documents in order. Have your legal counsel investigate whether there are any inaccurate open liens, UCC filings or similar items. Nothing is worse than a mad scramble the day before the closing to sort out these sometimes complicated matters. In addition to the stress, that mad dash to the finish line can rack up some costly legal fees and related expenses.

A couple of additional items that you could and probably should focus on before selling include:

Consolidating your Property & Casualty markets to achieve efficiencies and to maximize contingent-bonus commissions and other opportunities.
Moving small and commodity business to insurance company service centers to achieve additional efficiencies.

Regardless of where you are in the M&A cycle — two or 10 years out from selling your business — these recommendations are solid operating procedures.

An agency owner always should follow a couple principles. First, always run and manage the agency as a business and not as an extension of lifestyle. Second, run and manage the agency to position it for maximum valuation as if you need to sell it tomorrow.

Tim Cunningham, is a founding principal of Optis Partners, a Chicago-based specialty investment banking consulting firm.

Special Reports /

Thinking of selling your agency? Here's what to do

Related Stories

Recommended For You