How Buyers Prepare for the Agency Acquisitions

Written By: Wildhawk Capital

Purchasing an insurance agency is often difficult and time-consuming for the buyer. The merger and acquisition (M&A) process is one that requires careful planning, the use of competent professionals, and an understanding of the deal dynamics involved in negotiating an insurance industry related transaction. Buyers that have not participated in many M&A transactions frequently make mistakes that can result in less favorable pricing and/or terms that would have otherwise been obtainable. Or, because of inexperience, have even killed the transaction altogether.

The following is a list of five topics to help mitigate problems while attempting to purchase an insurance agency:

1. Putting Your Own House in Order:
Before starting to look for an acquisition, there are a few things that you should complete before you start looking for the acquisition and talking to commercial lenders:

  • Have all partners run their credit reports and fix any items that are not correct.
  • To the best of your ability, pay down any personal credit cards to less than 30% of their credit limits.
  • Gather into one bank account the monies to be used for the down payment, if cash. If investment funds, please understand the penalties and timing to remove the funds from your investment accounts.
  • If you haven’t done so, file the most recent personal tax return ASAP.

2. Putting Your Agency in Order:
Before starting to look for an acquisition, there are a few things that you should complete before you start looking for the acquisition and talking to commercial lenders:

  • Do you have current financials for the agency? A Profit & Loss Statement and Balance sheet for the current year and previous year, that mirrors last year’s tax return.
  • Has the most recent tax return been filed for the agency, if not, file them.

3. Be prepared for the time commitment.
Successful acquisitions are not easy. They are time consuming, involve significant due diligence by the buyer. They involve a complete review of the Seller’s financials, tax returns, commission statements, and in some cases, the Seller’s bank statements. The acquisition requires a time commitment to deal preparation, as well as ample resources to close the transaction. Acquisitions can often take 6 to 12 months from the initial contact to the closing date.

4. Hiring the correct legal counsel
You shouldn’t have a general practitioner or general corporate lawyer guide you through the process or negotiate and draft the acquisition documents. You should have a lawyer who primarily handles mergers and acquisitions. There are many difficult and complicated issues in structuring acquisitions, putting together Letters of Intent, Purchase Agreements, reviewing loan documents and closing the transaction. You want a lawyer who understands insurance industry issues thoroughly. One who understands the M&A legal landscape, is responsive and understands the sense of urgency, and one who has done numerous acquisitions and can help protect you.

5. Spending the time on the Purchase Agreement
A key factor to a successful purchase of an agency is negotiating a well-drafted purchase agreement that details the structure of the sale, while protecting you as much as possible. To the extent possible and depending on the leverage the seller has, you want your counsel to prepare the first draft of the purchase agreement. A well-crafted agreement will reduce the risks of not closing the deal, mitigate the potential post-closing risks, and ensure that the expectations of all parties are defined and met. One of the worst mistakes a buyer can make is to assume that a “middle of the road” approach to each issue will offer appropriate protection for you and your agency.

I hope these five items will help you in preparing for your next acquisition.

About Wildhawk Capital
We are a licensed direct lender to the insurance industry nationwide. We specialize in one thing, loans to the insurance industry. Contact us today for more information on the advantages of receiving working capital or acquisition funding from Wildhawk Capital.

Please fill out our Online Application, and a loan specialist will contact you to discuss your financing needs and how we can help you achieve your goals. Let’s get started today!

Ed Sellers
Wildhawk Capital LLC
949-629-3312, Direct

Wildhawk Capital LLC, All rights reserved 2023.

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