confidential insurance agency ownership perpetuation tom doran
Post on 23-Dec-2015
219 Views
Preview:
TRANSCRIPT
CONFIDENTIAL
Insurance Agency Ownership Perpetuation
Tom Doran
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Reagan Perpetuation Studies2
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Insurance Agency Ownership Perpetuation
• Two Excellent Options:
InternalPerpetuation
ExternalPerpetuation
or
3
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Four Pillars of Internal Perpetuation4
Healthy Operation
Reasonable Sellers
Able Buyers
Effective Transfer Mechanism
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Four Pillars of Perpetuation5
• Healthy Operation• Reasonable Sellers• Able Buyers• Effective Transfer Mechanism
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Profitability6
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
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Growth is Essential• Growth provides buyer purchasing power• Growth influences the EBITDA multiple, which impacts
value• Growth means viability
7
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Four Pillars of Perpetuation8
• Healthy Operation• Reasonable Sellers• Able Buyers• Effective Transfer Mechanism
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Accept Internal Valuations
Yes47%
No53%
9
Are Sellers in Your Firm Willing to Take a Discount to a Third-Party Valuation?
CONFIDENTIAL Insurance Agency Ownership Perpetuation
7 years
Finance the Deal
Receive 100%
cash at close32.2%
Finance the deal67.8%
10
Are Sellers receiving cash at close or are they financing
the deal?
MEDIAN DOWN
PAYMENT
12.5%
MEDIAN FINANCING
PERIOD
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Time Share Sales Appropriately
< 25 25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75 +0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Current Ownership Distribution Ownership Distribution in 10 Years
Shareholder Age
Ow
ners
hip
% H
eld
by O
wners
in A
ge G
roup
11
Current WASA 53.8
WASA in 10 Years 56.7
Assumes sales at age 65 and no sales to younger employees*
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Four Pillars of Perpetuation12
• Healthy Operation• Reasonable Sellers• Able Buyers• Effective Transfer Mechanism
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Assessing Financial Ability13
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
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Buyer Coverage Ratio14
Yes55.0%
No45.0%
Is Your Firm’s Buyer Coverage Ratio 100% or Higher?
CONFIDENTIAL Insurance Agency Ownership Perpetuation
100% Buyer Coverage Ratio ≠ Free Ride15
• 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
Out of Pocket Costs (BCR = 100%) Typical Buyer Profile
• Age 37• Highly compensated
Producer• Risk tolerant• Plays well with others
CONFIDENTIAL Insurance Agency Ownership Perpetuation
What Does a Buyer Transaction Look Like?16
MEDIAN DOWN
PAYMENT
10%MEDIAN
FINANCING PERIOD
8 years MEDIAN
BUYER COVERAGE
RATIO
100%
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Biggest Challenges to Finding Buyers17
Financial Resources
Leadership
Potential Buyers
Willingness t
o Defer Gratification
Sophistication
Interest in Ownersh
ip
Cohesion
Other
64.8%
33.5% 31.9% 31.5% 31.1%
12.3%7.5% 4.8%
CONFIDENTIAL Insurance Agency Ownership Perpetuation
The Four Pillars of Perpetuation18
• Healthy Operation• Reasonable Sellers• Able Buyers• Effective Transfer Mechanism
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Industry Use of Transfer Mechanisms
Ownership Purchases
Stock Grants Gifting ESOPs Stock Op-tions / Phan-tom Equity
Other
65.4%
9.8% 9.8%3.8% 3.8%
7.5%
19
What is Your Firm’s Primary Transfer Mechanism?
CONFIDENTIAL Insurance Agency Ownership Perpetuation
How Do the Pieces Fit Together?20
Recruit Talent
Grow and Increase
Value
Reasonable Sellers
Buyer-Friendly
Purchases
CONFIDENTIAL Insurance Agency Ownership Perpetuation
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 …
21
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Reco
very
Agency values have increased during every economic period in past 2 decades
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00 S&P 500 RVI Public Brokers
HardMarket
The “Great Soft Market”
TheLeverageBubble 6.9%
Annual Growth Rate
9.4%Annual Growth Rate
10.6%Annual Growth Rate
TheGreat
Recession
22
CONFIDENTIAL Insurance Agency Ownership Perpetuation
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
Keys to remaining Independent23
CONFIDENTIAL Insurance Agency Ownership Perpetuation
1998 Business Insurance Top 10024
As of 7/19/99
Rank Company
1998 U. S. Brokerage Revenue
1 Marsh & McLennan Cos. Inc. $3,350,460,0002 Aon Corp. $2,286,440,0003 Willis Corroon Group Ltd. $630,554,7804 Arthur J. Gallagher & Co. $471,991,8155 USI Insurance Services Corp. $327,000,0006 Acordia Inc. $306,869,2257 Hilb, Rogal & Hamilton Co. $172,163,3608 Norwest Insurance Inc. $161,090,0009 Brown & Brown, Inc. $150,443,00010 Jardine Lloyd Thompson Group P.L.C. $146,147,40011 Lockton Cos. Inc. $117,291,10412 BB&T Insurance Services, Inc. $80,726,48013 American Phoenix Corp. $71,247,72514 Near North Insurance Brokerage Inc. $70,785,00015 McGriff, Seibels & Williams Inc. $60,151,87216 Meadowbrook Insurance Group $56,966,40017 Talbot Financial Corp. $55,174,00018 ABD Insurance & Financial Services $55,040,00019 Lambert Fenchurch Group P.L.C. $52,969,35020 Frank Crystal & Co. Inc. $52,969,35021 Palmer & Cay Inc. $52,374,67022 Keenan & Associates $50,400,00023 The NIA Group $47,734,22624 Hobbs Group L.L.C. $47,728,09525 Summit Global Partners Inc. $47,410,87426 Riedman Corp. $47,373,00027 Kaye Group Inc. $44,983,99328 John L. Wortham & Son L.L.P. $40,288,00029 Healthcare Insurance Services Inc. $38,019,22930 Frenkel & Co. Inc. $34,422,30031 Robert F. Driver Co. Inc. $34,104,80032 The Sullivan Group $33,950,00033 Timberline Insurance Managers Inc. $32,206,39534 Commerce National Insurance Services Inc. $31,568,60035 The Leavitt Group $31,185,00036 J. Smith Lanier & Co. $30,584,00037 Bollinger Inc. $28,569,65138 Meeker Sharkey Financial Group Inc. $27,939,54339 Marshall & Sterling Enterprises Inc. $27,301,87240 Insurance Management Associates Inc.-an Assurex partner $26,920,43841 Holmes, Murphy & Associates $26,499,23642 Calco Insurance Brokers & Agents Inc. $26,397,60843 Rebsamen Insurance $24,513,87044 Mesirow Insurance Services Inc. $24,379,77245 Hylant-McLean Group $24,237,00046 Heath Group P.L.C. $23,672,82547 Tanenbaum-Harber Co. Inc. $22,799,70048 Van Beurden Insurance Services Inc. $22,690,00049 Cal-Surance Associates Inc. $21,949,00050 The Graham Co. $21,542,745
Rank Company
1998 U. S. Brokerage Revenue
51 The Treiber Group L.L.C. $21,204,59252 Andreini & Co. $20,875,00053 Mellon/Clair Odell Group $20,658,00054 Berwanger Overmyer Associates-an Assurex partner $20,288,37555 Cameron M. Harris & Co.-an Assurex partner $20,144,56156 Saldana & Associates Inc. $18,882,16757 Old Kent Insurance Group $18,746,64058 Sullivan & Curtis $18,288,77059 Daniel & Henry Co.-an Assurex partner $18,039,00060 Allied Coverage Corp. $18,000,00061 BWD Group Ltd. $17,820,00062 Van Gilder Insurance Corp.-an Assurex partner $17,578,64663 The Tribus Cos. $17,500,00064 InterWest Insurance Services Inc. $16,948,80065 Wm. Rigg Cos. $16,813,13366 Dodge, Warren & Peters Insurance Services Inc. $16,580,88667 Horton Insurance Agency Inc. $16,246,11768 Kelter-Thorner Inc. $16,166,15069 Lawley Service Inc. $15,737,19470 James B. Oswald Co.-an Assurex partner $15,601,00071 Hastings-Tapley Insurance Agency $15,161,79772 Van Meter Insurance Agency Inc. $15,084,00773 Bratrud Middleton Insurance Brokers $15,000,00074 Fringe Benefits Management Co. $14,834,54875 Davis Baldwin Inc.-an Assurex partner $14,722,25776 Anchor Pacific Underwriters Inc. $14,688,00077 Associates Agencies Inc. $14,553,00078 Bowen, Miclette & Britt Inc. $14,431,26879 Fred A. Moreton & Co.-an Assurex partner $14,368,25880 The Loomis Co. $14,215,04681 Silverstone Group Inc. $13,920,00082 Allied American Insurance Agency Inc. $13,880,18583 The Rutherfoord Cos.-an Assurex partner $13,770,10184 Hamilton Dorsey Alston Co.-an Assurex partner $13,103,89685 Parker, Smith & Feek Inc.-An Assurex partner $12,990,88086 Seitlin-an Assurex partner $12,500,00087 Charles J. Crane Agency Co. $12,426,35388 Insurance & Risk Management-an Assurex partner $12,396,78089 Hibbs-Hallmark Co. $12,384,19790 The Rosenthal Cos. $12,338,00091 Bolton & Co.-an Assurex partner $12,286,18492 Starkweather & Shelpley Insurance Brokerage Inc.-an Assurex partner $12,110,00093 Mack & Parker Inc.-an Assurex partner $11,760,00094 Lovitt & Touche Inc. $11,742,41495 R. C. Knox & Co. Inc. $11,557,00096 Posse Walsh Buckman Van Buren $11,302,00097 Hefferman Petersen Insurance Brokers $11,300,00098 Haas & Wilkerson Inc. $10,989,12099 The Hays Group Inc. $10,925,000
100 Scott Insurance $10,838,802
Who has not changed hands?
CONFIDENTIAL Insurance Agency Ownership Perpetuation
1998 Business Insurance Top 10025
As of 7/19/99
Rank Company
1998 U. S. Brokerage Revenue
1 Marsh & McLennan Cos. Inc. $3,350,460,0002 Aon Corp. $2,286,440,0003 Willis Corroon Group Ltd. $630,554,7804 Arthur J. Gallagher & Co. $471,991,8155 USI Insurance Services Corp. $327,000,0006 Acordia Inc. $306,869,2257 Hilb, Rogal & Hamilton Co. $172,163,3608 Norwest Insurance Inc. $161,090,0009 Brown & Brown, Inc. $150,443,00010 Jardine Lloyd Thompson Group P.L.C. $146,147,40011 Lockton Cos. Inc. $117,291,10412 BB&T Insurance Services, Inc. $80,726,48013 American Phoenix Corp. $71,247,72514 Near North Insurance Brokerage Inc. $70,785,00015 McGriff, Seibels & Williams Inc. $60,151,87216 Meadowbrook Insurance Group $56,966,40017 Talbot Financial Corp. $55,174,00018 ABD Insurance & Financial Services $55,040,00019 Lambert Fenchurch Group P.L.C. $52,969,35020 Frank Crystal & Co. Inc. $52,969,35021 Palmer & Cay Inc. $52,374,67022 Keenan & Associates $50,400,00023 The NIA Group $47,734,22624 Hobbs Group L.L.C. $47,728,09525 Summit Global Partners Inc. $47,410,87426 Riedman Corp. $47,373,00027 Kaye Group Inc. $44,983,99328 John L. Wortham & Son L.L.P. $40,288,00029 Healthcare Insurance Services Inc. $38,019,22930 Frenkel & Co. Inc. $34,422,30031 Robert F. Driver Co. Inc. $34,104,80032 The Sullivan Group $33,950,00033 Timberline Insurance Managers Inc. $32,206,39534 Commerce National Insurance Services Inc. $31,568,60035 The Leavitt Group $31,185,00036 J. Smith Lanier & Co. $30,584,00037 Bollinger Inc. $28,569,65138 Meeker Sharkey Financial Group Inc. $27,939,54339 Marshall & Sterling Enterprises Inc. $27,301,87240 Insurance Management Associates Inc.-an Assurex partner $26,920,43841 Holmes, Murphy & Associates $26,499,23642 Calco Insurance Brokers & Agents Inc. $26,397,60843 Rebsamen Insurance $24,513,87044 Mesirow Insurance Services Inc. $24,379,77245 Hylant-McLean Group $24,237,00046 Heath Group P.L.C. $23,672,82547 Tanenbaum-Harber Co. Inc. $22,799,70048 Van Beurden Insurance Services Inc. $22,690,00049 Cal-Surance Associates Inc. $21,949,00050 The Graham Co. $21,542,745
Rank Company
1998 U. S. Brokerage Revenue
51 The Treiber Group L.L.C. $21,204,59252 Andreini & Co. $20,875,00053 Mellon/Clair Odell Group $20,658,00054 Berwanger Overmyer Associates-an Assurex partner $20,288,37555 Cameron M. Harris & Co.-an Assurex partner $20,144,56156 Saldana & Associates Inc. $18,882,16757 Old Kent Insurance Group $18,746,64058 Sullivan & Curtis $18,288,77059 Daniel & Henry Co.-an Assurex partner $18,039,00060 Allied Coverage Corp. $18,000,00061 BWD Group Ltd. $17,820,00062 Van Gilder Insurance Corp.-an Assurex partner $17,578,64663 The Tribus Cos. $17,500,00064 InterWest Insurance Services Inc. $16,948,80065 Wm. Rigg Cos. $16,813,13366 Dodge, Warren & Peters Insurance Services Inc. $16,580,88667 Horton Insurance Agency Inc. $16,246,11768 Kelter-Thorner Inc. $16,166,15069 Lawley Service Inc. $15,737,19470 James B. Oswald Co.-an Assurex partner $15,601,00071 Hastings-Tapley Insurance Agency $15,161,79772 Van Meter Insurance Agency Inc. $15,084,00773 Bratrud Middleton Insurance Brokers $15,000,00074 Fringe Benefits Management Co. $14,834,54875 Davis Baldwin Inc.-an Assurex partner $14,722,25776 Anchor Pacific Underwriters Inc. $14,688,00077 Associates Agencies Inc. $14,553,00078 Bowen, Miclette & Britt Inc. $14,431,26879 Fred A. Moreton & Co.-an Assurex partner $14,368,25880 The Loomis Co. $14,215,04681 Silverstone Group Inc. $13,920,00082 Allied American Insurance Agency Inc. $13,880,18583 The Rutherfoord Cos.-an Assurex partner $13,770,10184 Hamilton Dorsey Alston Co.-an Assurex partner $13,103,89685 Parker, Smith & Feek Inc.-An Assurex partner $12,990,88086 Seitlin-an Assurex partner $12,500,00087 Charles J. Crane Agency Co. $12,426,35388 Insurance & Risk Management-an Assurex partner $12,396,78089 Hibbs-Hallmark Co. $12,384,19790 The Rosenthal Cos. $12,338,00091 Bolton & Co.-an Assurex partner $12,286,18492 Starkweather & Shelpley Insurance Brokerage Inc.-an Assurex partner $12,110,00093 Mack & Parker Inc.-an Assurex partner $11,760,00094 Lovitt & Touche Inc. $11,742,41495 R. C. Knox & Co. Inc. $11,557,00096 Posse Walsh Buckman Van Buren $11,302,00097 Hefferman Petersen Insurance Brokers $11,300,00098 Haas & Wilkerson Inc. $10,989,12099 The Hays Group Inc. $10,925,000
100 Scott Insurance $10,838,802
Who has not changed hands?
28%
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Why Sell to a Third-Party Buyer?
FEAR
$No Plan
26
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Valuation Realities
2007 2008 2009 2010 2011 2012 20131.0x
1.2x
1.4x
1.6x
1.8x
2.0x
2.2x
2.4x
2.6x
1.31x 1.27x1.2x 1.18x 1.21x
1.28x1.35x
2.1x 2.06x
1.79x1.9x
1.97x2.1x
2.2x
Internal External
*Reagan Value Index and Reagan Consulting analysis
27
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Deal activity scorecard
Notes: 1Through 12/15/13Source: SNL Financial
Most active buyers list unchanged, but deals down by half
Buyer 2012 Deals 2013 Deals1
Hub 29 18
Confie Seguros 18 17
AssuredPartners 27 16
Arthur J. Gallagher 60 12
Fidelity National Financial 7 8
Brown & Brown 16 5
Marsh Agency 14 5
USI 12 5
Total 183 86
28
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Acquisition market share by type of buyer
2008 2012
22.3%10.4%
14.3% 31.8%
19.9% 10.1%
19.6% 26.3%
23.9% 21.4%
Public Broker
Private Broker
Bank
Private Equity
Other
Source: SNL Financial, Includes North American Deals
Private Equity from last to first
29
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Keys to successful perpetuation – internal or external
30
CONFIDENTIAL Insurance Agency Ownership Perpetuation
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
31
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Build carefully to achieve desired results
Concentration Risk
Minimize Long-Term Commitments
Market Compensation
Clean Financial Statements
Careful Long-Term Investments
Maximize Profitability
Advisory Team
Restrictive Agreements
Legal Structure
Ownership of Assets and Exit Strategies
Align Ownership Interests
People Investment
Sales Culture
32
CONFIDENTIAL Insurance Agency Ownership Perpetuation
To access Reagan’s Private Ownership Study,
visit our webpage atwww.reaganconsulting.com
33
CONFIDENTIAL Insurance Agency Ownership Perpetuation
Tom DoranSenior Vice President & Principal
Tom joined Reagan Consulting as a consultant in 1993 and became a principal in the firm in 1995. 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.
404.869.2534tom@reaganconsulting.com
34
top related