MOVES TO MAKE
IN 2022

Amid an M&A frenzy, there are things an agency can and should do to thrive

At any moment, one of your “less sophisticated” local competitors could sell to a platform broker and suddenly be able to effectively compete with you for clients they previously couldn’t dream of serving.

By James Graham, CVA

How will your firm survive and thrive amid the increasing pace of consolidation and operational improvements enabled by scale of competitors? Now more than ever it is critical for agency and brokerage owners to have a plan to outperform their peers to remain relevant and stay in control of their future.

An owner should not look at the frenzy of merger and acquisition (M&A) activity and think that the only take away is that their firm is valuable and that one day they may be able to sell for a higher valuation then they would have in the past. A key takeaway from market M&A activity is that there is an increasing number of large, sophisticated platform firms that are leveraging scaled resources to compete for your clients.

At any moment, one of your “less sophisticated” local competitors could sell to a platform broker and suddenly be able to effectively compete with you for clients they previously couldn’t dream of serving. With this in mind, below are five actions firm owners should take to survive and thrive.

1. Have a strategic plan. Very few insurance agencies or brokerages have a real actionable strategic plan. Even if they have a plan, they don’t implement it. Don’t be a dreamer, be a doer. A plan is only as good as the action put into carrying it out. If a firm struggles with this process, it is helpful to bring in an outside party to help formulate a plan and keep the leadership group accountable. Also, when you make commitments to your staff about firm performance it inspires the whole team to push toward success.
2. Be niche focused. Choose to be an expert in something rather than mediocre in many things. Niche-focused firms can provide outsized value to their clients and tend to achieve higher organic growth rates than generalist firms. It is possible to have multiple niches within your firm, but it is important that you have teams built and dedicated to each one.
3. Refresh technology. Many firms should be embarrassed about the state of their technology. Not only have many been on the same agency management platforms for over a decade, some also haven’t refreshed their websites in over that time period either. Technology systems should be refreshed with regularity. Have a technology plan that includes a schedule for software and hardware updates and replacements. Don’t lose an account because your competitor presents real-time information in a sleek way while you’re rummaging through your briefcase.
4. Understand your valuation. It is amazing how many times firm owners think they know their value because they spoke with a firm looking to buy them. This may be a surprise to some, but value is subjective—offers that have not been vetted by a qualified third party who is advocating for them are likely to be materially lower than they should be. Even if an M&A event is over a decade away, engaging with an expert to learn the components of value will greatly assist owners in operating their business in the near term.
5. Establish an end game. One day, every owner will sell. They will either sell to an outside third party, their employees, or their heirs. Either way, no one can take their shares to the afterlife. It is not uncommon for firm owners to believe that they will eventually sell their firms to their kids or their employees only to find out that either the kids or employees don’t want to buy or can’t afford to buy the firm at a reasonable valuation. It is important to plan for this well in advance of the actual transition to avoid a situation where an owner must backtrack on their stated goals.

The rapid change in the market witnessed often in M&A headlines is a call to action. Those that respond will find themselves at worst capturing premium valuations and many potential partner options when their time comes to sell and at best developing themselves into a platform buyer that allows them to sell their company multiple times and have their legacy continue beyond their own careers.

Those that ignore the call are at risk of seeing the value of their life’s work diminished materially and will likely receive only limited interest when they decide the time is right to sell.

The author

James Graham joined MarshBerry in 2015 and is a vice president on MarshBerry’s Financial Advisory team in its Dana Point, California, office. His expertise includes merger and acquisition advisory, capital raising, business valuation, perpetuation and succession planning, and strategic planning. James provides his clients with customized financial and capital strategies to help them accomplish their goals. He also is a facilitator for MarshBerry’s Connect Network and actively publishes articles relevant to the insurance distribution marketplace.

Prior to joining MarshBerry, James was a senior consultant with Deloitte Consulting LLP.

James currently maintains the FINRA Securities Industry Essentials (SIE®) Exam in addition to the Series 62, 79 and 63 FINRA Registrations through MarshBerry Capital, LLC, the affiliated FINRA-registered broker-dealer of Marsh, Berry & Co., LLC. He earned a Bachelor of Science in Finance from Azusa Pacific University and a Master’s in Business Administration (MBA) from George Mason University. He is also a Certified Valuation Analyst (CVA). Contact him at James.Graham@MarshBerry.com or (949) 272-0351.

MARKET UPDATE

As of December 2021, there were 868 M&A transactions announced for the year in the United States. This is the fifth straight year of hitting a record high in deal count, and it seems as though we may never reach a peak in activity (or valuations).

The blistering pace of transactions in 2021 represents a 22.2% increase compared to the 2020 announced deal tally of 711.

Private capital-backed buyers remain at the top of the market in terms of number of announced transactions, completing 75.2% of all announced transactions. Independent firms were the second largest group of buyers and they accounted for 108 of the 868 (12.4%) announced deals. Seller line of business has remained consistent in 2021 with 65% being P-C focused, 21% multi-line and 14% of sellers in the employee benefits and consulting space.

The Top 10 most active buyers completed 436 of the 868 (or 50.2%) total announced transactions.

Investment banking services offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440) 354-3230.

Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. Scorecard year-to-date totals may change from month to month should an acquirer notify MarshBerry or the public of a prior acquisition. 2021 statistics are preliminary and may change in future publications. Please feel free to send any announcements to M&A@MarshBerry.com.

Source: S&P Global Market Intelligence and other publicly available sources.