The majority of failed mergers and acquisitions are the result of insufficient or insufficiently performed due diligence analysis. Before acquiring another insurance agency, conduct as much research as possible, regardless of whether you intend to make an asset or stock purchase. Here are some essential research areas.
Compare the tax returns and commission statements of the selling insurance agency – this is a good independent check on what the seller represents.
Determine the reason for the agency’s sale.
There are a number of valid reasons for selling, such as retirement or succession planning, but there may also be other factors at play.
Identify patterns in carrier activity.
Determine which insurance companies the majority of the agency’s business is placed with. Determine if these carriers intend to reduce commission rates, provide less favorable terms for contingent contracts, alter product offerings, or withdraw from your state.
Examine the seller’s book
Consider commissions outside of the past few years. Determine the proportion of accounts that have been on the books for two years, five years, and even ten years.
Determine the reason for the agency’s sale. There are a number of valid reasons for selling, such as retirement or succession planning, but there may also be other factors at play.