ATLANTA–Agents may search for a magic formula to create agency value but the chief executive of one of the largest insurance brokerage firms said the primary ingredient is leadership.
J. Hyatt Brown, chairman and chief executive officer of Daytona Beach, Fla.-based Brown & Brown told executives here that in order to grow a business, someone must be willing to show the way. Successful organizations, he said, groom and promote leadership.
"If you don't have a leader you are not going to grow," Mr. Brown said.
His observations were part of a seminar on mergers, acquisitions and internal perpetuation sponsored by Reagan Consulting on Tuesday.
He noted that when Brown & Brown began its journey toward growth, it was a $2 million agency looking to substantially increase its revenues and profit margin. By 1989 it had more than $29 million in revenue and in 2006 recorded close to $900 million.
But that growth did not come without a learning process that included bringing in a sales consultant, Roger Sitkins of the Sitkins Group, to review its sales culture. On the strength of his recommendations, Mr. Brown said the firm began its gradual drive toward increasing revenues.
To be successful, he said it is necessary to get the entire organization to buy into the process. In part, this meant sharing the wealth through stock incentives, a program shared by all of the firm's employees.
Another part of getting everyone on board includes annual sales meetings where producers are encouraged to bring their spouse. He remarked that once a spouse observes how successful everyone else in the organization is, he or she will encourage the producer to work harder to achieve the same.
"It is part of our culture," Mr. Brown said, adding that, "Culture is like religion. It is a powerful thing."
Success also comes from hiring people willing to work and rewarding them not only through incentives but with the freedom to accomplish through their own initiative.
"People risk and succeed on their own abilities," Mr. Brown said. "If you put your shoulder to the wheel you rise in our company."
Bobby Reagan, president of Reagan Consulting outlined a series of strategies for success. These included abandoning unprofitable business, getting producers to focus on existing business, providing incentives for business performance, seeking referrals, improving efficiency and making strategic acquisitions.
For those making a deal, one of the most difficult prospects is valuing an agency. Kevin M. Stipe, vice president and consultant with Reagan Consulting, pointed out that EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) is the best gauge of the firm's revenue performance. Looking at a simple multiple of revenue can be deceiving, he said.
He noted that one of the most important points in any deal is to understand what is being purchased and the agreements that exist among other producers. The buyer wants to purchase assets, and receive all the tax benefits that can come from an asset purchase deal.
Too often, Mr. Stipe said, buyers find out very late in the deal that what they are pursuing is not the corporate set-up they intended.
"You need to know this early on in the conversation," Mr. Stipe said.
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