Partnership concept with hands putting puzzle pieces together on sky background with sunlight

Mergers are business tools used for joining resources to develop a larger share of the market by offering consolidated services or expansions into new territories. Given that the insurance industry has several types of products, it’s normal for an independent agent to join forces with another agent or agency. At the end of the transaction, a single entity owns the assets, liabilities and the company obligations contained within the merger agreement.

Mergers and Acquisitions (M & A) is a term used interchangeably. They share similar activities associated with this business transaction. But, the course of a merger action has its own attributes in creating the remaining entity. Small businesses with limited resources often, face challenges linked to growing their market share. Merging with another agency is a strategy to scale up operations, share liabilities and improve profitability.

Types of Merger

Mergers can take place between Limited Liabilities Partnerships (LLC), domestic and foreign entities or individuals and Corporations. The merger style you choose depends on the plan and method of sharing resources and experiences for both parties to increase the revenues and profits.

  • Horizontal merger — two entities (competitors) selling similar products, join forces to strengthen the company’s presence in the market by eliminating a competitor. This strategy has proven to work well for combining an existing market share, offering operational efficiency to the new entity.
  • Vertical merger — two companies with different products that complement each other — unite services. The approach reduces the operational costs, diversifies the product and service implementing a product market expansion by adding another form of insurance coverage.
  • Conglomeration — two or more businesses that have nothing in common with the business market or positioned in different geographic locations. The business units come together to form a single entity. The tactic gains a competitive edge in the designated markets.


Managing the merger besides the due diligence guidelines are industry regulations along with the enforcement of legal protocols. Meeting with an industry professional before moving forward is recommended. They will prepare and educate you on every step. The other party has just as much at stake in this merger when merging companies are the same size in customer base or operation scale. Don’t be surprised, when they engage due diligence of their own.

You need to understand the obligations of this transaction, contingent liabilities, litigation risks and the proper handling of intellectual property. Working with professional intermediaries and business consultants, saves you time, money and frustration in finding the right entity, collecting the due diligence verifications and the confidence of signing on the dotted line.

Besides your advisor team, there’s another overseer in this merger process. The U.S. Government has established statues under the Antitrust laws referred to as competition laws. Since we live in an open market economy, this law protects the consumers and ensures good business practices on fair competition.

Structuring the Deal

At the end of the merge the two business entities will form a single enterprise. The surviving company takes title to all the assets, liabilities and rights as the other entity no longer exist. Constructing the right structure requires a team to review the financial terms, legal aspects and secure the surviving entity’s claim. Sometimes, the surviving company creates a subsidiary (triangle structure) as a protection against the other entity’s liabilities.

Most mergers proceed in a similar form although some have specific conditions and objectives linked to assets or rights depending on the parties involved in the transaction.

  • One of those conditions is the change of control consent. This in one advantage for small business mergers, since they have fewer shareholders needing to agree with the business transaction.
  • If stocks are involved, under state laws, opposing stockholders of the merging entity have the power to exercise an appraisal right to receive “fair value”.

Once the structure has been defined, the new entity has legal issues to resolve as part of the due diligence process.


Merging two businesses is exciting, and the process can get complicated. The future of the business is riding on a smooth transaction, keeping the brand accountable and customer satisfaction intact. Negotiating a good deal results from preparation and planning with the guidance of an experienced industry advisor.