Every day you hear about one huge brokerage or another buying up another small agency. It’s happening in the United States at record rates.
What doesn’t always make the headlines is merger and acquisition activity at the smaller end of the scale – for example, one small agency buying out another. But it’s happening all the time, and for a number of reasons.
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Insurance Business spoke with someone in the know about what he sees happening in the acquisition world of the small-to-middle market agencies. Rick Dennen is president and CEO of Oak Street Funding, which provides loans to insurance agencies for M&A activity, as well as funding for other forms of growth.
“We see this all the time. We see these smaller [M&A] deals – they’re just as prevalent,” Dennen said. “[But] it’s a friendly structure, and a succession way for these older guys to get out.”
In terms of loan dollars for Oak Street, only about one-third of loans are for the bigger acquisitions – where the values are necessarily much higher. The smaller deals, though, still make up a lot of the books.
“Really, the market we serve is that middle market and smaller market,” he explained. “[We have] the ability to do loans from $25,000 to $25 million, so to speak – and we see both sizes of deals.”
The key difference between the smallest acquisitions and the largest could often be characterized by friendliness, Dennen said.
Where big money deals are very much corporate transactions, smaller deals more often than not were formed and dealt between friends and acquaintances.
“Most of it is succession stuff, when you’re dealing with the smaller [deals]. You might have someone in their 60s talking to someone in their 50s, and that 60-year-old is saying, ‘Look, I’m getting to that point where there’s still a lot of regulation, there’s a lot of change, I don’t want to update my technology and invest in the business, so let me sell it to you. Give me 50, 60, 70% of the cash up front, and then I’ll transition the book to you over a three-year period, and you can pay me the remainder of three or four years’.”
In this way, it’s usually “sell it to a buddy and everyone is happy,” Dennen said. “It’s very friendly, smaller deals, as opposed to an [actual] M&A strategy.”
