Growing Your Book of Business Through Agency Acquisition

Quick Look: Whether it’s buying an agency, or buying a book, growing your business through acquisition can yield huge rewards for a broker. Conducting research, planning growth goals accordingly, and seeking expertise from professionals will help minimize risk, maximize potential and put you ahead of the buying competition. 

Expanding your business should be top of mind for every insurance and employee benefits broker, and there are many ways to make that growth happen. Establishing growth goals using traditional tactics from sales, renewals, cross sells, upsells, lead generation, marketing, referral plans, and more is the time-honored traditional path to build your agency book. This is often referred to as organic growth.

Read >> For Brokers: Creating a Predictable Pipeline with Organic Growth.

Another way to grow is via acquisition. Whether you’re an industry veteran or new to the broker game, this method has the potential to boost your agency growth and list of clients substantially.

Typically, there are two methods to accomplish this:

1. Buy an agency. Buying an employee benefits or insurance agency means just what it implies–lock, stock and, barrel. You purchase all the tangible assets–the brick and mortar, the staff, the name, the website, as well as the book of business.
2. Buy a book of business. Buying a book of business is buying a line or a segment of business, without the building, the logo, the name, the physical assets, or the people. Just the accounts and the client relationships.

Other growth strategies such as partnerships or product line expansions can also be very effective, but in this article, we’ll take a deep dive into growth by acquisitions, reviewing some of the key considerations for success.

Buying an insurance agency or a book of business can be a time-consuming and expensive process. Conducting thorough due diligence can be the difference between success and failure, so it’s important to go into the process with that understanding.

Key considerations in buying an agency or book of business

To start, you should establish your goals and ask yourself these questions…

• What is it that you want to achieve?
• Do you want to grow geographically?
• Do you want to grow into a specific line of business?
• Are you trying to eliminate competition or to strengthen your competitive edge?

Once you’ve determined your goals, consider getting the counsel of professionals, like an appraiser or legal adviser, to assess your own agency for planning purposes. An outside consultant specializing in agency valuations can help evaluate your current business health, including strengths and weaknesses. They can help you assess what you can afford and test your acquisition assumptions and goals. In many cases, the right consultant can help you target prospects and walk you through the process until closing.

Next: do your research! Learn about available inventory, who might be interested in selling—and why. Keep an ear to the ground in your own network and think about agencies in your region where a broker might be close to retirement age. Ask your insurance underwriters and your business partners. Check popular insurance and employee benefits publications like BenefitsPro or the National Association of Health Underwriters (NAHU) for information. Research M&A consultants and brokers. You can even post ads on social media or put a notice of interest in agency acquisition on your website or blog.

Homing in on an acquisition target

When you find the ideal target prospect, learn why the current owner is selling the agency or book. Is the owner retiring or are there viability issues? You want to make sure to evaluate the agency reputation in the market, staffing, client relationships, and agency book. Relationships are key in this industry, so think about whether it would make sense to have the current owner play a role beyond the sale.

There are two important steps you should take once the M&A talks look serious:

• Execute confidentiality agreements.
• Check in with your Errors and Omissions (E&O) insurer early to alert them to the potential acquisition. Find out if they have any guidance about particulars in your planned acquisition.

Read >> How [E&O] Policies Respond When Buying or Selling an Agency.

Be sure to know the agency you are buying inside and out. Review the target agency’s operations, assets, liabilities, book of business, finances, financial health, and carrier appointments. Does the agency own the right to its account expirations? Is it a good book of business with growth potential? Are there considerations related to licensing, regulatory requirements, or disclosures? Do they have strong relationships with partners, like a Professional Employer Organization (PEO), who can help further grow the business?

Once you’re satisfied, you’ll need an attorney to help draw up a buy-sell agreement. The buyer and the seller should have separate attorneys representing them in this process.

Read >> Characteristics of a Good Buy-Sell Agreement.

It’s also important to make sure you have a client transition plan in place prior to closing the deal. Existing clients will want to know how this change will potentially impact their organization, and the products and services they receive from you. Keeping them well-informed with clear communication will be key in retaining their business.

Provide logistical details such as when the transition will occur, your contact information including phone number, email, change of address (if applicable), and any new products or services that may be available to them.

Make sure to arrange a mutually agreed-upon timeline for the seller to complete all responsibilities. You can also consider inviting the seller to participate in meetings with your newly acquired clients to make introductions and address any concerns.

Buying an insurance or employee benefits agency: What NOT to do

Unfortunately, not every acquisition will work out the way it was intended. M&A experts cite several reasons why:

• Overpayment and limited knowledge of agency value. Read >> Establishing Agency Value.
• Overestimating the upside potential.
• Rushed or thin due diligence resulting in unforeseen problems.
• Integration problems and merging the new agency culture and operation with the old.

For other potential problems, see Acquisition of Insurance Producers: Common Pitfalls.

Don’t let these caveats discourage you. Acquisition can be a great broker growth strategy if you approach things carefully and with diligence. One final piece of advice: Check in with friendly, non-competing peers who’ve executed a successful acquisition and get their advice about what they would advise to do and not to do based on their experience.