There’s more than one way to grow an insurance agency. You can build a book of business one client at a time or leverage a strategic acquisition to grow in leaps and bounds. Both methods have their place, and many successful agencies use a combination of growth strategies. If you’ve been sticking to the one-policy-at-a-time method, it’s worth considering how a strategic acquisition could help you overcome barriers so you can take your agency to new levels.
Understanding Insurance Agency Acquisitions
In an insurance agency acquisition, one agency purchases another agency, known as the acquired agency.
There are many ways this can happen. In some deals, the acquired agency keeps its name, staff, and operations. In other deals, the acquired agency is rebranded under the acquiring agency’s name, or it may get a new, hybrid name that leverages its brand recognition while showing that it’s now part of a bigger company. The former owner of the acquired agency may stay on in a new capacity, at least for a while, to help ensure a smooth transition. All of the details are worked out between the buyer and the seller during negotiations.
Acquiring another agency can be funded in several ways, including cash or equity, but buyers often use loans to finance the acquisition. There are even lenders that specialize in this type of loan. The availability of funding means that an acquisition may be a viable growth strategy for you even if you don’t have the funds on hand to cover a large deal.
Using Acquisitions to Overcome Barriers to Growth
It can be hard to establish yourself as a new agency owner. You need to secure carrier access, find clients, and build a reputation. Once you figure things out, you can start to see impressive growth – until you don’t. Sometimes growth peters out, and it’s not for a lack of trying. If you’re in a small town, or if there’s a lot of competition, you may simply have reached market saturation. To break through to the next level, consider a new strategy.
An acquisition can be a big part of that strategy.
For example, maybe you started out with personal lines, and now you’re realizing that if you want to drive real growth, you need to embrace commercial lines. Unfortunately, it’s been difficult to get your foot in the door. There aren’t a lot of new businesses in your area, and the existing businesses already have coverage, so it’s hard to find clients. You also need more access to top commercial carriers, and to be honest, you don’t have the experience or expertise that commercial lines require.
If you acquire an agency with a strong commercial business, you can easily clear all of these hurdles.
Using Acquisitions to Fill in Gaps
When acquiring an agency, you’re also acquiring all of its resources, expertise, and connections. If you select an agency that complements your own, the acquisition can fill in gaps in your agency, creating a stronger company.
Do you need:
- Strong sales in key lines?
- Niche expertise?
- Geographic expansion?
- Specific carrier appointments?
- Sophisticated tech?
Purchasing an agency that already has these things can be a quick way to reach your goals. The important thing here is to select an agency that matches your needs. If you want to establish yourself as the go-to source for trucking or construction insurance, buying an agency that specializes in personal lines won’t help.
Being Acquired Can Also Be Advantageous
For the purchasing agency, an acquisition can be a great business move, but it can also be a good deal for the acquired company.
Agency owners sell for many reasons. Often, they’re nearing retirement, so they’re ready to step back from work, and they want to use the proceeds as a nest egg. However, agency owners may also decide to sell because they realize their small agency needs to be part of a larger agency to succeed in the current insurance agency landscape. With the backing of a bigger agency, they’ll be in a better position to serve their clients and grow.
Heffernan Network offers tailored perpetuation and acquisition strategies. In addition to traditional agency acquisition, we offer agency perpetuation that lets you keep your existing brand. Learn more.
