Have you ever thought about selling your brokerage? Mergers and acquisitions are commonplace in today’s ever-consolidating insurance industry, but it’s not always easy to crack the best deal.
There’s a plethora of different stakeholders who will acquire a brokerage, including family members, venture capitalists, external producers, strategic buyers and consolidators. It’s best not to jump the gun when it comes to handing over the business reins, according to Colin Clahane, director, Business Finance Group, BMO.
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He recently addressed a packed crowd at the Insurance Brokers Association of Ontario (
IBAO) Convention in Ottawa, where he gave six key principles for brokers to bear in mind before selling their business.
1. Put your potential buyer in the limelight
“Maximise exposure for the person who will be running the shop as early and as often as you possibly can, for both internal and external stakeholders.”
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2. Provide job shadowing
“You don’t need to handhold [new operators] through the process, but effective job shadowing can be really useful. But at some point, you need to fully relinquish control. These individuals have to fall on the sword of consequence. They have to learn, live and die with the decisions that they make, which is ultimately how they will grow.”
3. Avoid the clone dilemma
“If I had a dollar for every time a broker said they wanted to clone themselves, I would be a millionaire. The practical reality is, you might in fact be the biggest impediment to your brokerage as it moves forward. You have to assess where you sit from a competency level and how the brokerage needs fit – and if they don’t mesh, then you have to figure out that gap.”
4. Formalize your contracts
“With respect to financial and non-financial considerations – formalize them. I appreciate there will always be holes and it can be a headache to enact litigation, but from a deterrent view point, formal contracts are a lot stronger than a handshake deal.”
5. LOIs are your roadmap
“Confidentiality agreements and Letters of Intent (LOIs) are flying out like cupcakes off the shelf in the industry at the moment. LOIs are your roadmap to your transaction. They ensure that there are no surprises when you get to the end sale stage of your transaction, but bear in mind that they’re not a mechanism to be shopped out to fish for value.”
6. Cashflow is king
“From a financial standpoint, cashflow is king. You pay your bills with cashflow, not earnings. If your corporate ownership structure is giving you a headache, then the chances are it’s going to give the buyer a headache as well. Clean it up - do yourself a favour and make [your finances] more palatable for the operator coming in.”
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