What are acquisition multiples today?
There is not an easy or clear answer to this question. Each agency is valued differently. Even when two agencies are alike on the surface they could have very different valuations. There are several valuation methods or multiples to consider that relate to different measurements and there are different wide ranges of multiples based on varying criteria. It is a much an art as it is a science when it comes to agency valuation.
What is EBITDA ?
EBITDA stands for earnings before interest, taxes, depreciation and amortization. Sometimes EBITDA is referred to as “ cash flow” or “ profit”.
Are valuations based solely on EBITDA?
A valuation is a culmination of a myriad of factors and based on several valuation methods, not just relating to EBITDA or cash flow.
What factors affect the valuation of an agency?
There are a variety of factors that affect the valuation of an agency and they include but are not limited to the following ( size of the agency, geographic location, competition, revenue mix, non-competes, succession or perpetuation preparedness, method of replicating a sales force, type of software and or systems, leases, quality of staff, growth potential, profit trends over the next several years, recurring and non-recurring revenue, legal structure of the entity, direct bill versus agency bill, non-standard vs. preferred business, carrier appointments, niche verticals or classes of business, agency reputation, deal structure, dependence on large accounts, age of key employees, historical underwriting profitability, diversified book of business, employee morale, agency culture and quality of facilities.)
What is an adjusted EBIDTA?
An adjusted EBIDTA is where a seller legitimately “adds back” their personal or non-recurring expenses that have been run through their income statement. Basically any expense that will not need to be paid post acquisition.
Why should I consider selling or merging now?
It is still a “ sellers “ market and still a “hard” market. History tells us it won’t last forever. Healthcare reform provides for some degree of uncertainty in the market place and could possibly have an effect on valuation in the years ahead. Capital gains tax continue to rise and there are still questions as to whether that trend will continue. You have more options today than ever before and it is possible through Winston Dunn Inc. relationships to align yourself with a quality firm where you can keep your culture, take some “chips” off the table and maintain an equity stake in your operation. In theory it is possible to put some cash away and gain resources, markets, support , capital and five to ten years from now sell the balance at what you would have sold the entire agency for prior to a merge.
Will I lose my control?
Many of the clients we work with want to merge or purchase your agency because they envision you as their partner. As a true business partner your common goals will be to grow the agency. Together you can work to develop a business plan of mutual interest. You will know your role, how you will be compensated and the plan for both to succeed. Many of our clients value your firm’s name and relationships you have built over the years. My clients are not in the business of tearing down your agency but they want to build it. You will have access to more direct carriers, more products to sell at a more competitive pricing.
Does my agency fit your clients profile?
Typically our relationships will look at retail, wholesale or MGA’s that are anywhere from $500,000 in revenues up to 10 million in revenue. Our clients are interested in mergers and acquisitions across the country.
FREQUENTLY ASKED QUESTIONS BY PRODUCERS:
How do I get around my non-compete?
Competing firms will want you to honor your non-compete however some producers may have a clause that will enable another agency to purchase the book at an agreed upon price. A new agency typically will be interested in you as a producer because they believe you will be able to maintain and enhance your knew business production with their agency and thus will be comfortable paying you a guaranteed compensation until you have built your new book.
Why would a top preforming producer move to another firm?
There are a number of reasons as to why some of the industry’s premier talent will consider a move to another company. Those reason include ( the ability to spend more time producing, better support, equity in their book or agency, a better culture, specific markets or unique/exclusive programs, stronger payout on new or renewal business, opportunity to cross sell of existing accounts, a better defined lead source, resources to prospect for and win larger accounts, their company was recently acquired or change in management structure, platform which will enable them to be a regional or national niche practice leader, not happy with direction of current firm, different geographic location and less internal competition.)