Agency M&A Advisor

View our video presentation (bottom of page) and read the article below about what to consider before hiring an advisor to help you value, sell or buy an insurance agency.  Please give us a call if we can be of any assistance to you: (321) 255-1309.

What to Look for in an M&A Advisor

Insurance agency and brokerage principals hire M&A advisors for a number of reasons, which include to:

1) Represent them in the sale of their brokerage or book of business.
2) Represent them in seeking and acquiring a brokerage or books of business.
3) Perform a valuation of an insurance brokerage.
4) Assist in a due diligence evaluation of a brokerage being acquired.
5) Assist with obtaining capital for an acquisition.
6) Assist with executing an internal perpetuation of their brokerage.

Such relationships can be short term and flat-fee based, or long term and contingency-fee based.  The intent of this article is to provide some guidance as to what someone should be looking for in an advisor before engaging one for services.  Much like the 5 Cs of credit, I will present these as 5 areas: (1) Experience, (2) Knowledge, (3) Credentials, (4) Processes, and (5) Character.
The most important thing to understand is the potential advisor or advisory firm’s experience as it relates to the services that you are engaging them for.

a) How many client engagements are they working on?
b) How many have they completed in the last 12 months and prior years?
c) What is their success rate and are they willing to provide references?
d) What kind of clients have they worked with in the past (personal or commercial lines P&C, individual or group benefits, retail or wholesale, small or large companies, etc)?
e) Do they have experience working with a business such as yours or in assisting with the type of service that you desire?
f) As it relates to selling, what kind of buyers and finance companies have they worked with in the past?
g) Do they have completed transaction “tombstones” and testimonials available for you to review, and will they provide references that you can call?

A knowledgeable advisor should be able to speak intelligently about the industry, industry segments and business models, appraisal methods, types of buyers and capital sources, and the process of the service that you are hiring them for.   Take the time to listen to them and ask questions to gain insight into their knowledge and expertise.  As a potential advisor to you, they should be able to articulate what they know and how they will serve you to add value to the engagement.  Just as you should do your due diligence on them, a credible advisor will do the same on you and your company before entering into a relationship.  You should be suspicious of any that will not.

M&A advisors can come from all sorts of professional backgrounds; former business owners, accountants, attorneys, sales, banking and a multitude of other disciplines.  Those credentials alone are insufficient though.  To be effective, an M&A advisor needs to be skilled in accounting principles, contract law, sales, marketing, negotiations, business valuation and finance.  When it comes to expertise in mergers and acquisitions, there are only a few professional associations that provide education in the United States.  The International Business Broker’s Association© and Merger & Acquisition Source© are the most reputable organizations and offer the Certified Business Intermediary (CBI) and Merger & Acquisition Master Intermediary (M&AMI) certifications which require significant course work and demonstrated transaction experience.  When it comes to expertise in business valuations and appraisals, there are three main organizations that provide education in the United States. The American Society of Appraisers©, the National Association of Certified Valuation Analysts©  and the Institute of Business Appraisers© are the most reputable organizations and offer the Accredited Senior Appraiser (ASA), Certified Valuation Analyst (CVA) and Certified Business Appraiser (CBA) certifications which also require significant course work and demonstrated engagement experience.   In many cases, an M&A advisor will need to be licensed in either real estate or securities brokerage to negotiate the sale of a business and get paid a contingent fee.  While very few business sale transactions are done as stock purchases, a securities transaction, such as a stock sale, that is negotiated by an unlicensed broker could potentially be later over turned by a court which can have significant financial ramifications for you.

Whether contracting with the advisor to value your company, sell it or acquire others, the advisor will not be very effective if they do not have good processes in place.  The processes, strategies and objectives should be explained to you in the beginning.  An advisor that lacks a well-planned strategy is like a general sending soldiers to war without a battle plan and the result will be the same – wasted resources and failed execution.  Clearly defined processes are also a sign of experience and capability.

As in any relationship, the character of the individual(s) that you will be working with should be of high importance.  If the advisor will be representing you, then you will want to make sure that they are someone that you like personally, will represent you in a professional manner, will work hard and put your interests above their own, and has the personality to mediate and manage multiple parties effectively.

When seeking a professional merger and acquisition advisor, make sure that you weigh each of these factors into your consideration and speak to multiple advisors before making a decision.  Choosing the wrong advisor can be a painful and costly experience, but choosing the right one can lead to highly fruitful and long-lasting relationship for both parties to the engagement.

Posted by:  Michael Mensch, CBI, M&AMI and Managing Partner

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