Finance | Five Steps to a Successful Acquisition

Expanding your insurance agency can be daunting – especially if it involves an acquisition. But with careful planning and the right advisors, it can be easier than you think. Here are five steps to help guide you through the acquisition process.

After considering size, customer base, location and other demographics, you might already have the ideal agency in mind. But, sometimes finding an agency that is open to acquisition can be a challenge, particularly when you want to keep the transaction quiet. Let insurance association professionals, like Independent Insurance Agents of Wisconsin (IIAW), know you are interested in growing. They may be able to connect you with an agency that is interested in merging.

It is highly recommended to consult with an accounting firm that has experience in valuating an agency to determine a fair purchase price. When doing a valuation, the firm will take into consideration the book of business, profitability, risk models, tangible assets and other factors including management experience.

Even with a proper valuation market demand can easily affect the purchase price. When negotiating, remember it is always preferrable to have the seller establish the price before you make an offer. You never know, they may be willing to sell for less than you were going to offer.

It’s important to choose a financial institution that understands the complexities of the insurance industry. Not all lenders are experienced in this area. Often, they are uncomfortable funding an agency acquisition without requiring a Small Business Administration (SBA) loan. This isn’t always necessary. If you work with a bank that has expertise in the insurance industry, they will be able to find the best financing option for you – and it is very likely it won’t require SBA backing.

After the acquisition is final, it’s important your agency remains healthy by following accounting best practices, controlling expenses and maintaining profitability and cash flow. Once you have sufficient reserves, then consider prepaying your loan. The faster you pay off the loan, the faster you gain equity. The more capital you have, the easier it is to expand your agency, including acquiring another agency. And then it’s time to start all over again on step one.

Security Financial Bank (SFB) is a Wisconsin financial institution that specializes in lending to insurance agencies. As a leader on SFB’s Insurance Lending Team, Curt Van Auken has helped numerous insurance agents with their banking needs, including acquisitions, partner buyouts, building expansions and refinancing projects. For more information, visit https://www.sfbank.com/insuranceagencies.phtml or contact Curt at cvanauken@sfbank.com.

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