Proactively investing time

in the process can help secure favorable outcomes

Agency perpetuation is one of the most consequential

decisions an owner will make. … Formulti-generational

owners, selling externally can be especially challenging emotionally.

By Kelly Drouillard

Successfully perpetuating an insurance agency demands foresight, thorough preparation, and experienced guidance. Although today’s agency owners benefit from more perpetuation options than ever, these choices are frequently misunderstood. The complex interplay of modern capital structures, private equity participation, and traditional agency operating models creates complexities that many owners underestimate until well into the transition process.

This evolving landscape is significantly influenced by the widely discussed “silver tsunami,” a trend impacting nearly every industry, especially insurance. On the distribution side, a considerable number of agency principals are nearing retirement. At the same time, valuations remain attractive, which is driving strong interest from buyers. Consequently, agency perpetuation has shifted from a long-term planning exercise to an urgent strategic priority for many owners.

It is essential to view perpetuation not as a single transaction, but as a comprehensive process spanning years. This journey requires careful alignment of financial goals, personal priorities, employee considerations, and ensuring positive long-term client outcomes. Owners who proactively invest time in understanding their perpetuation options early are much better equipped to secure favorable outcomes.

Understanding the primary perpetuation options

Agency perpetuation generally falls into one of four broad categories, each with distinct advantages, challenges, and implications for owners, employees, and clients. Each is examined briefly below.

1. Status quo: Doing nothing. The most common perpetuation strategy is, unfortunately, no strategy at all. Many owners continue operating as they always have, assuming they will “figure it out later.” While this approach may feel comfortable in the short term, it often limits future options. Health events, market changes, or buyer shifts can force rushed decisions that reduce value and increase stress.
2. External perpetuation: Selling the agency. Selling outright remains the most visible and frequently discussed option.

Some owners prefer a minimal seller transition, where the buyer fully integrates leadership, operations, and systems, allowing the seller to exit quickly with limited ongoing involvement. This approach appeals to sellers who are ready to retire or pursue other pursuits.

Others choose a strategic partnership with ongoing seller involvement. In these transactions, the seller remains actively involved post-closing, often supported by expanded resources, technology, and growth incentives. For some owners, this structure creates renewed energy and the opportunity to grow the agency in ways previously not possible.

3. Internal perpetuation. This involves transferring ownership to an existing employee, perhaps a family member, who has the desire, skill set, and financial capacity to become an owner. While this option can preserve culture and continuity, it requires early planning. Financing, governance, and leadership development must be well addressed in advance for internal transitions to succeed.
4. Hiring for perpetuation. Some agencies intentionally hire a high-level professional with long-term ownership potential. This approach allows owners to develop future leadership from the ground up, but it requires patience, clear expectations, and a structured path to ownership.

The four stages of successful perpetuation

Regardless of whether perpetuation is internal or external, mistakes are common, and timelines are frequently underestimated. Each stage of the process includes elements that owners often misunderstand.

1. Vision and priorities. It can be challenging to visualize life without the identity of agency ownership. As an owner, employer, and business leader, it is not uncommon to be concerned with simply “What will I do with my time?”, “Who will I be if I’m not an owner?” and “When is it time?”.

Being honest and introspective with oneself is difficult. Yet no one lives forever. Start the conversation with yourself and your family. Once the dialogue is initiated, it does get easier to visualize the next stage of life.

When asked about their ideal successor, many owners struggle to articulate clear priorities. Internal transitions may feel straightforward, but external buyers represent a broad and diverse spectrum.

While agency valuation often dominates discussions, other priorities are equally important:

• Client continuity and service standards
• Employee retention and career opportunities
• Cultural alignment

Private equity–backed buyers are frequently assumed to be similar. In reality, they vary significantly in their operating philosophies, integration approaches, and growth expectations.

For any buyer, key areas to evaluate include employee support, client servicing models, producer development, offshore resources, agency management system integration, niche expertise, personal versus commercial lines mix, and cross-sell capabilities. And above all, the cultural fit must be apparent.

2. Preparation and valuation. Preparation aligns financial expectations with operational realities. A strong valuation does not guarantee a successful outcome if deal structure, transition expectations, and buyer fit are overlooked.

Preparation is more than just financials. Buyers are also looking for:

• Consistent revenue growth
• Strong EBITDA margins
• Niche market specialization
• Commercial lines focus
• A committed, licensed team
• Smooth ownership transition

These factors can drive valuations well beyond average market multiples.

What drives a high agency valuation?

Premium valuations are earned—not given. The best-performing agencies consistently deliver results in these core areas:

Financial performance and key metrics. Financial strength is the foundation of a high agency valuation. Buyers place significant emphasis on:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin
• Revenue per employee
• Sustained profitability over three to five years

Agencies with solid, reliable financial results consistently outperform the market in valuation.

Year-over-year revenue growth. Steady, predictable revenue growth can significantly increase your agency’s value. Buyers look for agencies with a proven track record of growth—the higher and more sustainable, the better. This is policies in force and customer growth, not just rate increases.

Niche market specialization. Specializing in niche markets is one of the most effective ways to boost agency valuation. Agencies that offer expertise, strategic focus, and targeted marketing in specific industries stand out to buyers.

Niche specialization demonstrates:

• Market expertise
• Competitive advantage
• Strong client loyalty

Lines of business. Buyers typically place higher value on agencies with a strong commercial lines portfolio. Commercial lines often generate higher revenue and stronger profitability. Often, a solid personal lines book is also present within an agency and ideally aligns with a growth strategy for commercial lines. A deliberate new business and cross-selling process focused on qualifying and prioritizing the leads and quotes will enhance value.

Smooth ownership transition. The willingness of agency owners to stay involved for three to five years post-sale is a significant factor in increasing value. Buyers want continuity to ensure client retention, maintain relationships, and support employee stability.

Experienced, licensed staff. A dedicated, well-trained, and licensed team enhances your agency’s value. Buyers seek agencies with employees who have:

• Strong tenure
• Industry licenses
• Commitment to remain post-transaction

While the above factors can drive premium valuations, there are also baseline expectations that every buyer seeks. Failure to meet these can negatively impact your agency’s value or require a more contingent deal structure.

These base expectations include:

• High client retention rates and favorable loss ratios
• Stable relationships with competitive carriers
• Established operating history
• Diversified book of business (avoiding heavy concentration in large accounts)
• Modern technology and automation systems
• Clean financial records and legal documentation
• Clear ownership of the book of business and clean producer structure

3. Execution and professional assistance. Experienced advisors help sellers clarify transition goals before meeting buyers, present the agency in the best possible light, assist sellers with understanding deal structures, evaluate buyer capabilities, and compare a range of options with clear pros and cons.

Ideally your CPA, attorney, and advisor are all experienced in insurance agency transactions, all work together, and provide the seller with comprehensive support.

4. Transition. These expectations must be aligned not only in legal documents, but in genuine intent. Misalignment often leads to frustration for sellers, buyers, employees, and clients.

Transition requirements vary based on agency type, seller involvement, product complexity, market conditions, employee depth, client concentration, recent performance, seller energy, and buyer integration capabilities.

Some buyers seek sellers who are motivated to grow the agency post-closing, often offering meaningful incentives. Others can quickly assume ownership responsibilities, allowing sellers to step away. Neither approach is inherently better—alignment is what determines success.

Evaluating buyer equity and recapitalization reality

If selecting a buyer that is supported by private equity, the seller typically accepts equity in the new owner as a component of the purchase price. While all buyers tout the purported enhanced economic benefit to the seller, it is not that simple. The risk/reward of the equity component needs careful analysis.

For sellers accepting equity, understanding buyer capitalization is critical to realistic expectations of long-term value and future cash liquidity. Most sellers need experienced assistance evaluating the equity component. Key considerations include the current cap table, management and employee ownership, stock classes, recap waterfalls, debt levels, credit facilities, acquisition pace, historical performance, hardship buyout provisions, and whether equity rolls are pre-tax or after-tax.

Family agency perpetuation: Engaging the next generation

Family-owned agencies form the backbone of many local insurance markets. Family agency perpetuation remains a strong component of overall agency perpetuation.

Perpetuating a family agency across generations can be emotionally complex. Family dynamics, money, and age can be a cocktail of family drama. The more systemic and transparent the approach is, the more likely it is that relationships will be preserved.

Over the years, I have assisted multiple clients navigating family agency perpetuation. One clear trend emerged: Attractive external valuations have raised the financial stakes for family transitions. Selling internally to a child or family member now often means accepting a lower upfront price in exchange for continuity, legacy, and long-term family involvement.

At the same time, the next generation of agency professionals is bringing new ideas, technology, and operating philosophies that can materially enhance agency value. These dynamics make early, honest conversations essential.

If family members are working at the agency, discussions about succession should begin well before retirement is imminent. Children who are not involved in the business should also be included so they understand how the agency fits into the broader family and financial picture. If a sale—internal or external—is critical to funding retirement, that reality must be clearly communicated.

Creating space for conversation

The most crucial step is simply starting the conversation. The goal of early conversations is not immediate answers. Many of these questions, typically for the adult children of agency owners involved, require reflection and time.

To facilitate productive discussions, consider asking:

1. What thoughts do you have about ongoing family ownership and control of the agency?
2. What opportunities do you see for the agency’s future?
3. Do you want to be an owner?
4. Is majority ownership important to you, or would minority ownership be acceptable?
5. Are you comfortable taking on debt or personal guarantees to buy equity, possibly over time?
6. How do you feel about partnering with or working under a third-party owner?
7. Would you want to stay if the agency were sold externally?
8. Would equity in a third-party buyer be appealing?

These questions are designed to uncover alignment, concerns, and aspirations—not to force immediate decisions.

Perpetuation planning requires active listening and an open mind. Owners are often surprised by their children’s responses, whether those responses reflect enthusiasm, hesitation, or alternative career goals. Flexibility allows families to explore creative solutions that balance financial realities with personal values.

Final thoughts

Agency perpetuation is one of the most consequential decisions an owner will make. It requires balancing financial goals, personal readiness, employee welfare, and long-term legacy considerations. For multi-generational owners, selling externally can be especially challenging emotionally.

The right advisor brings clarity, realism, and options—helping owners navigate complexity and avoid costly missteps. Thoughtful planning today creates flexibility tomorrow and increases the likelihood of a successful, satisfying transition.

The author

Kelly Drouillard, CPCU, CPA, has completed hundreds of deals for agency and specialty distribution transactions representing sellers, assisting buyers, and with commercial debt. Her advisory work also includes valuations, agency perpetuation, and strategic planning.