Renate Mueller explains why some brokerages are harder to sell
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This video first ran in January 2012.
Narrator: Trying to sell or purchase a business can be a difficult, cumbersome and often complex process. In the third installment of a short series on the merger and acquisition industry, host Renate Mueller, the President of Renate M. Mueller Consultants Inc., explains why some brokerages are harder to sell than others.
Renate Mueller: Yes, there are brokerages that are harder to sell and I can give you some general examples of what may be more difficult to sell—everything is sellable—but, for example, in smaller communities there would be fewer buyers. So smaller communities do not have the opportunity to sell to perhaps as many potential purchasers as the greater Vancouver area has, or in Calgary or Edmonton or one of the major cities.
Producers become issues as a difficulty in selling when there are no producer contracts in place. So the question becomes, who actually owns that book of business as brought in by the producers. This can cause difficulty because it is a way of establishing pricing structure. If the book of business is not owned by the brokerage, then how can you sell it?
So (business) contracts as well as employee contracts are relevant because there is always the consideration, what if that major employee, who might be manager, moves to another brokerage? Are there non-compete clauses and so on? So, do they have contracts with all their employees? And if they don’t, they really should have them in place.
Other areas of difficulty are if they have few insurer markets and one of the markets decides they don’t want to do business with them until the end of the year, then they have one less market and maybe they only have two and now they’re down to one, it makes it more difficult to attract buyers because they also might be losing those clients to other brokerages.
Another example of difficulties would be high claims history. In other words, is the brokerage well run, or are they taking all-comers? They have a high claims history and that indicates that perhaps the management and the employee experience, as well as perhaps the territorial area—maybe they’ve got clients in an area where there are high claims. And that could cause them to lose an insurer market, because of the high claims history.
And the final one I have on my checklist of difficulty is ownership. We have found in the past—well, I guess into the current time period—insurers are providing financing for acquisition so the ownership may very well be that the insurer has the first right of refusal in selling the business. Which restricts them to sell into an open market place; getting them perhaps the highest fair market value they could obtain, because the insurer has the first right of refusal and will be buying it a fixed sum that they feel is warranted. And yet the market place, if it was put in the market place, could command a higher price.
Other titles in this series:
Renate Mueller discusses mistakes owners make prior to selling their business
Renate Mueller explains the process when dealing with vendor clients
You might also be interested in: Former AMAC President launching new company: Renate M. Mueller Consultants Inc.
