Seller Options

When a firm finally comes to grips with the reality it is ready to sell to an outsider, the leadership has one major choice to begin the journey: should it meet with one potential partner or with several firms? 

A buyer will always push for an exclusive because it puts them in the driver’s seat. This may be a good approach for your firm, but be sure you go in with your eyes wide open.

Going direct and exclusive with one buyer can bring significant advantage to the process. In no particular order, they are:

•  It makes the deal process move significantly faster. It ends up being a much easier process. You have fewer meetings, fewer questions to answer and fewer documents to review.
• Confidentiality is typically less of an issue. It’s the law of averages. The more people who know about your plans, the more difficult it is to keep it confidential. While most (if not all) firms respect confidentiality and never intentionally breach it, things happen. The fewer who know, the better.
• There is a perception by some buyers that, if you choose to work with them exclusively, you really care about life after the deal—it’s not all about the money. The reality is that most sellers care about life after the deal. But let’s be honest, it’s always about the money. Always. When push comes to shove, if the top cultural fit is significantly lower in valuation, the seller typically goes with the guaranteed money. There is, however, goodwill created when exclusivity is granted upfront in a process.
•  If your goal is to sell at top dollar, talking to many buyers is typically a waste of time, because there are usually only a few buyers in the market who will pay top dollar for your agency. 

The one-on-one approach can also have its downside. Characteristics for consideration include:

•  How do you really know you made the right decision? When making a major purchase in my personal life, I typically try to evaluate at least three options first. I want to confirm my perception is the actual reality. The only way to really know is to meet with a few firms to ensure you’ve found the best cultural fit.
• Natural competition creates leverage. No one likes to be brokered, but the marketplace is so robust right now due to demand created by the crowded field of buyers. The counter argument to this point is you can still potentially leverage an exclusive arrangement. You could tell the exclusive buyer, “This better be a good deal or you will force my hand to speak to others.” This ends up being a gut feeling. It is always possible you could be leaving money on the table, the buyer could be taking advantage of you, or the buyer would be more flexible and aggressive in an aggressively competitive situation.

Regardless of your decision, the good news is you can start down one path and switch midstream. If you start exclusive with a buyer and don’t have a good feeling about it, just widen your net. If you meet with a few firms and one feels right, you can shorten your search and move forward with your deal. When you feel good about the cultural fit and compensation, make your deal. Then don’t look back. 

Market Update

There was a bit of a lull in September with only 19 deals announced. This is the lowest monthly count all year and 40% lower than in August. Don’t despair. Year-to-date is still up to 289 transactions through nine months. This compares to the next highest nine-month total back in 2008 (216 deals through September).

Hub International carried the month with four domestic deals bringing its year-to-date total to 24 transactions. AssuredPartners closed three deals in September and is tied at the top of the leaderboard, also with 24 deals. Confie Seguros (13 deals), Arthur J. Gallagher (12 deals), and NFP and Acrisure (10 deals each) round out the top five.

It’s no surprise when you look at the top-five list that private-equity backed firms have completed 119 transactions. This buyer group completed 128 transactions throughout all of 2014. This continues to be the top buyer category and will likely continue to be for the foreseeable future. With additional recapitalizations in this segment earlier this year, more capital has been committed to this space and will need to be deployed.

Another continued trend in the industry relates to a true investment strategy in partners across the industry. BB&T recently invested in U.K.-based Miller Insurance Services. It bought its ownership interest from Willis Holdings Group. Willis will continue to hold a 68.1% interest in Miller. Willis made its investment earlier this summer. The investment makes sense for BB&T, as it creates a stronger connectivity with the Lloyd’s market. An investment stake within any business will make a partnership or business relationship move to the next level. BB&T’s ownership of Crump and other retail presence in the U.S. allows it to gain a stronger hold on the placement of specialty or E&S business. Specialty units continue to be a focus as the property- casualty marketplace becomes more competitive. It will likely continue to be a strategy for firms to take an ownership interest in their domestic or international partners to bolster their business relationships.