I was recently contacted by a smart young agent who had come into the business through his father, learned the trade, and received a promise of financial backing for the acquisition of an agency. He had formed a relationship with a strong local agency and now felt capable (after one year) of going after much larger “game”—"elephant hunting" was his term for it—with respect to agency size. I’d like to share my answer to him with you....
I was recently contacted by a smart young agent who had come into the business through his father, learned the trade, and received a promise of financial backing for the acquisition of an agency. Knowing that we participate in many transactions every year and value hundreds of agencies, he contacted me asking for advice and help in the acquisition of an agency.
Moreover, he had formed a relationship with a strong local agency and now felt capable (after one year) of going after much larger “game” – ‘elephant hunting’ was his term for it – with respect to agency size.
I’d like to share my answer to him with you.
Hello, David. It is always good hearing from an "elephant hunter". But your story reminds me of another, similar one of a real hunter. He was brought up around guns all his life but was not permitted to shoot them because his father knew that it is a maturity of judgment as much as physical prowess and skill that is required to be a real hunter. Yet, the young man was certain that he could shoot and was ready to go after game, just like the hunters with dozens of years of experience.
Finally, his father relented and taught him the techniques of hunting and the skills of shooting. The young man caught on quickly and passed all of the tests given him. After his tests were completed, he was permitted to go hunting with the experienced hunter and did quite well. All considered him a potential hunter with great promise. Soon after his 21st birthday, he moved from his parents’ home with a gift from his father, a high-power rifle, with the caveat that he must only go shooting with other, more experienced hunters.
The young man, as most young men, felt that he had the skill, the talent and the education to hunt and that the older hunters would just take the trophies (and the glory). So he decided to go elephant hunting on his own. After all, he had been on six expeditions and had bagged game every time. The others knew that he had promise. Now he would show them that he was ready to be their equal.
After a few days in the wilderness, he came upon a perfect target, a mature elephant feeding. The young hunter set himself up and made ready to pull the trigger. He just had time to feel the hot breath of the bull elephant behind him before the beast crushed him underfoot.
The moral of the story: skill, knowledge and exuberance is important - but nothing beats experience — and someone guarding your back.
You are young, smart, probably aggressive and talented and have hooked up with a fine firm. But don't mistake the financial wherewithal, and a good start for the knowledge base learned from years of experience when it comes to buying and running an agency. The effect of a bull elephant is nothing compared to the effect of a smart and wily competitor facing a 'young buck' in the insurance sales arena.
I suggest that you hone your production skills in your current agency and ask for and assume some management responsibilities, one at a time, until the current owners tell you that you can run the agency as well as them. Then become their perpetuation. If that proves impossible, then consider making the contacts to acquire. You see, acquisition is not just a matter of desire and money. A seller (except unscrupulous ones that are just interested in getting the money and running) seek specific things in a buyer — beyond the buyer's ability to pay.
Many sellers have ties to their clients and suppliers that supercede simple business. It is a matter of reputation. They are very concerned that the sale of their agency does not reflect poorly on them in retrospect when they encounter their friends (their clients) in the future. They do intend to continue living in their communities and must contend with the results of their decision even though they have little control of how the buyer will act toward their employees and their clients. They also look to the buyer to bring strengths to the table like more an better staff, vast experience in like markets, strong existing relationships with carriers, both his existing ones and new ones that will even better secure the retired owner's financial future because of the additional options that the new owner brings to the table.
Most new (and small) agents who contact us with dreams of acquiring their way into agency management fail to understand that it isn't just money that dictates a seller's decision. You're much better off moving forward within an organization and seeking exit only if you can't become the perpetuator within your own firm.
We do not want or expect to negate the desires of agents to acquire agencies. But their reasons for doing so, not their financial or sales ability, will determine their chances of success.
Copyright 2004 by Agency Consulting Group, Inc. Used with permission.