Selling your business: Navigating M&As in the employee benefits market

The best time to think about selling your business is when you’re not interested in selling your business. Yet. “Run your business like it’s for sale,” said Brian Ambrosia, director at M&A advisory firm Marshberry. “These are not lifestyle agencies.”

Ambrosia was one of four panelists in a session on selling one’s business, at the 2022 BenefitsPRO Broker Expo, joining Shorepoint’s Amy Evans; Hurley Capital’s Charles Goldblum; and Hilb Group’s Suzy Johnson.

M&As have been a hot topic of late. Last year was a boom year for M&As in the employee benefits and insurance space, a surge Ambrosia attributed to fears over possible increases in capital gains taxes.

Now, although valuations are still at a high level, the supply of agencies for sale has decreased. But the demand is still there, Ambrosia says, particularly from private equity firms looking to invest in an industry they see as resilient even in a down economy.

But finding the right buyer is not necessarily easy.

Fit drives value

It’s not uncommon to hear a broker or advisor say they specialize — “I work in the public sector niche,” or “I work in the nonprofit sector.”

That’s not a bad thing, according to Ambrosia. At the least, you know where you fit into the market. “Firms are looking for certain things. If you’re not the right fit, you’re not maximizing the value of your organization.”

Some people start thinking about selling their agency only when someone approaches them offering money. But the worst thing to do is to assume they are the only option out there.  ”There are many people with money in their pockets,” said Charles Goldblum, founder and financial advisor with Hurley Capital. “There’s a perfect buyer out there for you.”

Why sell?

Why would you want to sell your business? Retirement, a change of career, a desire to seek more work-life balance are all typical reasons. Two owners who recently sold their agencies are Amy Evans, Associate VP Shorepoint Insurance Services and Suzy Johnson, Agency Leader and Managing Director, Hilb Group. They shared their reasons for selling and the process they went through.

“I wanted to establish a graceful exit for myself and my clients from this industry before I had to leave either because something happened to me or to the industry that necessitated having to leave,” Evans said, describing herself as “a serial entrepreneur and a professional salesperson.”

She noted that in 2015 when she established her agency, carriers reduced commissions, and it had an impact on the brokers who’d come before her. After she’d been running her agency for several years, there was more talk about reducing commissions. At that point she decided she couldn’t run an agency with more reductions.

For Suzy Johnson, it was a matter of having been in the business for 40 years, and running her own agency for over 30 years. Leaving was part of her retirement exit strategy, she said.

Lessons learned

Do your homework. Start learning about valuations, how your agency would be valued, and the things you can do to improve the value before you agree to sell. Johnson said she began educating herself around eight years ago, following Marshberry, talking to OneDigital about how they value a business.

One thing she learned was that a buyer would want to see a list of accounts and the average revenue on each case — and how they valued cases depended on whether the case revenue was above or below $10,000. “I had a long runway to stop doing the small groups and focus on the large groups so I could push the average up.”

Have conversations as early in the process as possible. It helps you understand how to speak about your book of business or your agency and own the value you’ve created, Evans said. And having those conversations will help you see there are multiple options for selling your business.

For example, options might include delivering your book to a producer and leaving; delivering your book and transitioning out over a year; delivering your book and becoming an active partner in the agency.

Clean up your financials. “No personal stuff should be in there,” Johnson said. “If you have it in there, hire somebody to get it out of there.”

Expect some stress. “It was a lot of holding my own in conversations with the legal department, the book of business transfer department, and fielding a lot of emails, and for a while it felt like a full time job,” Evans said.

“There are some tense moments, where they want to see certain things at 10 p.m. a week before the deal, and they want to change the numbers,” Johnson said.

Be aware your ego may take a hit. Your numbers and projections may be questioned, even though you know your business inside and out.

If they promise you something, make sure it’s in the agreement. This includes something as seemingly small as a phone allowance, or as large as what you will be paying in legal fees.

Small businesses have value too. For larger businesses, EBITDA is what they’re buying, and it’s how your business will be valued, the panelists said. But there are still buyers for smaller businesses, too, if your book of business is over $100,000 in revenue, Evans added.

Find someone who’s been through the process. “So many people go it alone because maybe they have a sense that they’re selling out or they’re afraid their clients will get wind of it,” Evans said. Her most valuable resource was a person who had sold their agency and was willing to be transparent, which helped her know what to expect.

The bottom line? Going through this process will be an education in itself.