1. Insurance Agency Ownership Perpetuation
Tom Doran

2. Reagan Perpetuation Studies

3. Insurance Agency Ownership Perpetuation
Two Excellent Options: or
Internal
Perpetuation
External
Perpetuation

4. The Four Pillars of Internal Perpetuation
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer
Mechanism

5. The Four Pillars of Perpetuation
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer Mechanism

6. (expressed as a multiple of revenue)
Profitability
EBITDA Margin
(% of revenue)
% of Industry
Value at 6.0x EBITDA
(expressed as a multiple of revenue)
Less than 10%
21%
Less than 0.6 x
10% to 20%
35%
0.6 x – 1.2 x
20% to 30%
26%
1.2 x – 1.8 x
Greater than 30%
18%
Greater than 1.8 x

7. Growth is Essential Growth provides buyer purchasing power
Growth influences the EBITDA multiple, which impacts value
Growth means viability

8. The Four Pillars of Perpetuation
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer Mechanism

9. Accept Internal Valuations
Are Sellers in Your Firm Willing to Take a Discount to a Third-Party Valuation?

10. 12.5% 7 years Finance the Deal MEDIAN DOWN PAYMENT
Are Sellers receiving cash at close or are they financing the deal?
MEDIAN DOWN PAYMENT
7 years
MEDIAN FINANCING PERIOD

11. Time Share Sales Appropriately
Current WASA 53.8
WASA in 10 Years 56.7 *
Assumes sales at age 65 and no sales to younger employees

12. The Four Pillars of Perpetuation
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer Mechanism

13. Assessing Financial Ability
BUYER COVERAGE RATIO
Buyer Ownership Distributions or Bonuses
Buyer Principal & Interest Payments
First-year metric: Does not contemplate growth in the business
Pre-tax metric: Taxes on ownership bonuses or distributions not included
Down payment not factored into the calculation

14. The Buyer Coverage Ratio
Is Your Firm’s Buyer Coverage Ratio 100% or Higher?

15. 100% Buyer Coverage Ratio ≠ Free Ride
Out of Pocket Costs (BCR = 100%)
Typical Buyer Profile
5% of $5 million firm
$25,000 down
Annual out-of-pocket tax expenses of $8,700
3% of $15 million firm
$45,000 down
Annual out-of-pocket tax expenses of $15,700
Age 37
Highly compensated Producer
Risk tolerant
Plays well with others

16. What Does a Buyer Transaction Look Like?
10%
8 years
100%
MEDIAN DOWN PAYMENT
MEDIAN FINANCING PERIOD
MEDIAN BUYER COVERAGE RATIO

17. The Biggest Challenges to Finding Buyers

18. The Four Pillars of Perpetuation
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer Mechanism

19. Industry Use of Transfer Mechanisms
What is Your Firm’s Primary Transfer Mechanism?

20. How Do the Pieces Fit Together?
Recruit Talent
Grow and Increase Value
Reasonable Sellers
Buyer-Friendly Purchases

21. Why remain independent?
Because this is an incredibly resilient industry
The future has never been brighter for creative and innovative brokers
The best talent in the industry follows the equity opportunities available at most independents
Unparalleled quality of life
Because the economic rewards are sizeable …

22. The “Great Soft Market”
Agency values have increased during every economic period in past 2 decades
Recovery
10.6%
Annual
Growth
Rate
The
Leverage
Bubble
9.4%
Annual
Growth
Rate
The
Great
Recession
Hard
Market
6.9%
Annual
Growth
Rate
The “Great Soft Market”

23. Keys to remaining Independent
Focus on operating results to support a robust internal valuation and distributable earnings
Hiring and developing of young professionals (aka buyers)
Plan for it, don’t assume it will simply happen

24. 1998 Business Insurance Top 100
Who has not changed hands?
As of 7/19/99

25. 1998 Business Insurance Top 100
Who has not changed hands?
As of 7/19/99

26. Why Sell to a Third-Party Buyer?
FEAR $
No Plan

27. Valuation Realities
*Reagan Value Index and Reagan Consulting analysis

28. Deal activity scorecard
Buyer
2012 Deals
2013 Deals1
Hub 29 18
Confie Seguros 17
AssuredPartners 27 16
Arthur J. Gallagher 60 12
Fidelity National Financial 7 8
Brown & Brown 5
Marsh Agency 14
USI
Total
183 86
Most active buyers list unchanged, but deals down by half
Notes: 1Through 12/15/13
Source: SNL Financial

29. Acquisition market share by type of buyer
Private Equity from last to first
Source: SNL Financial, Includes North American Deals

30. Keys to successful perpetuation – internal or external

31. Maximizing Valuation and Marketability - Start with a solid foundation
Restrictive Agreements
Legal Structure
Ownership of Assets and Exit Strategies
Align Ownership Interests
People Investment
Sales Culture

32. Build carefully to achieve desired results
Advisory
Team
Maximize Profitability
Careful Long-Term Investments
Minimize Long-Term Commitments
Clean Financial Statements
Market Compensation
Concentration Risk
Restrictive Agreements
Legal Structure
Ownership of Assets and Exit Strategies
Align Ownership Interests
People Investment
Sales Culture

33. To access Reagan’s Private Ownership Study, visit our webpage at www
To access Reagan’s Private Ownership Study, visit our webpage at

34. Tom Doran Senior Vice President & Principal
Tom joined Reagan Consulting as a consultant in 1993 and became a principal in the firm in He holds an undergraduate degree in Computer Information Systems and a Masters of Business Administration from Georgia State University. Before joining Reagan Consulting, he worked in the computer industry, both as a software developer and as a management consultant. Tom’s areas of expertise include merger and acquisition representation, agency valuation, ownership perpetuation planning, agency valuation enhancement and strategic planning facilitation. Tom is a regular contributor to Reagan Consulting’s industry studies and is frequently published in various insurance industry publications. He also speaks on a regular basis to industry trade groups and associations on a wide variety of topics concerning the insurance distribution system.