The steps to successful agency perpetuation — part 1

In order to learn how the large companies approach integration, I connected with Steven J. Bandrowczak, who was willing to share advice that could apply to independent agents as well as large companies. Bandrowczak, COO/CIO of Aon Hewitt, has personally been involved in 10 major M&A integrations with companies ranging in size from 5,000 to more than 200,000 employees.

Protecting revenue and customer base

According to Bandrowczak, the basic principles of any integration plan are the same regardless of business size. His focus is on protecting revenue and the customer base during the pre-, present and post-integration phases.

In order to protect revenue, a business must know its metrics, cash flow and productivity performance, and be able to measure these key performance indicators (KPIs) prior to, at closing and after. Bandrowczak's experience is that most companies don't know exactly what their core business is (i.e. number of orders and sales, monthly revenue, etc.) when establishing and measuring these metrics.

These benchmarks, specifically for insurance agencies, are available and published by some of the leading consulting companies, such as Reagan Consultants, Marsh Berry, PIA, IIABA, and others. Unfortunately, most agencies do not commit the time and effort needed to identify and measure their own metrics or benchmarks.

When it comes to post-integration, Bandrowczak's focus is on answering the question "What does day one look like?" What should the flow of revenue and business look like? He emphasizes it should be at least equal to pre-merger levels, and advises not to wait until the end of the first quarter to actually check, as that may be too late.

Common minefields

One of the most common "minefields" Bandrowczak has experienced that can blow up any deal during integration is the inability to stay focused on the reasons for pursuing the merger or acquisition in the first place, such as:

• Increasing revenue;

• Buying scale (reduce cost);

• Expanding the geographic footprint;

• Enhancing the management team and leadership;

• Offering new strategic products and services;

• Solving organizational issues.

Other "minefields" include:

• Conflicts in outsourcing in-house challenges in areas such as HR, compliance, IT and others, for workforce and financial management;

• Focusing too much on reducing/eliminating cost by what Steven calls "force and forget" — eliminating cost may not really boost revenue;

• Ignoring or avoiding the need to identify and address any differences in company culture;

• The existence of different silos in companies where different metrics are paid to employees and executives to focus on the wrong things;

• Neglecting your customers during the M&A transition;

• Not paying attention to the sales force, especially if there is overlap with sales from each entity calling on the same customer.

Successful agency perpetuation

As just one example, Bandrowczak talks about an acquisition made by a very large company to acquire a much smaller one for its technology and the exceptional talents of the CEO and founder. At the end of the first month, the CEO of the acquired company was gone, because the integration plan never addressed the roles of the acquired CEO and the incumbent CEO, neither of whom were willing to give up their positions. It was never addressed in pre- or post-integration, so the management talent and the primary purpose of the deal were lost.

While Bandrowczak's experience has been at the highest levels of M&A activity globally, he could not emphasize enough for small and mid-size companies — like independent insurance agencies — to consider the same integration issues they will face that the large companies have to deal with. He recommends developing and following a written integration plan covering every conceivable issue that must be dealt with, like KPIs, as well as contingencies that may be encountered.

Next month, part two will address an integration plan from an independent agent's perspective, and I will share insight and expertise from a successful executive with extensive global hands-on integration experience with small, mid-size and very large companies. Stay tuned.

Editor's note: Steven Bandrowczak can be reached at steven.bandrowczak@aonhewitt.com.

Barry Seigerman (bmseigerman@gmail.com) founded The Seigerman Agency in 1975 in Long Island, N.Y.  Now, he is an independent broker/producer, the latest chapter in a very long book of business he's built through the simple power of cultivating relationships.