BROKERTALK
moving from indicative to final offers. It is
worth thinking hard with your adviser
about whether an auction is the best way
forward for you. In an average process the
indicative offer will be the highest price
you see. As the process moves on so
management will spend more and more
time with the vendors, often revealing key
pieces of information that are not in, or
contradict, the Information Memorandum.
The result is bids generally then move
down, so don’t expect to get more than
Peter Allen
the indicative offer – this sets the ceiling
not the floor.
People power
The most important asset of any insurance broking business walks in
zero impact on the acquired business. Trade buyers will be looking to drive
and out of the door every day. Managing a transaction, so everyone feels
synergies and private equity will look to incentive management to meet
included and incentivised, is vital to getting the right deal done at the right
growth targets. All of this will dramatically alter the performance of the
price.
business post deal and render any prior valuations redundant.
Individuals with key client or operational relationships need special
It is important to consider how the price is being paid. Cash is worth a
consideration during the sale of a business. Are they generating significant
lot more than shares, and the objective of deferred consideration is to
amounts of income, or perhaps have profitable relationships with certain
protect the buyer from future uncertainty, not to reward the seller. So, give
distributors or assureds? Once identified, they need to be kept happy and
careful consideration to the balance between cash and equity you get on
preferably locked in long enough to ensure a smooth transition.
signing, and then look at the implied price for delivering upside potential.
This can start well before a sale even begins by using incentives such as
Detail counts
equity share schemes to build shared goals, and through the sale process by
It often appears that selling a business is all about answering reams of
they should be actively included and their concerns addressed. In almost all
questions, several times over, in increasing levels of detail, and sometimes
cases the vendor would expect key staff to have a share of the deferred
more than once to the same person. This is especially true in industries such
consideration to achieve this end.
as insurance which have a strong regulatory environment and arcane
Once is enough
accounting.
Uncertainty can deal a death blow to a business. If clients do not
The information memorandum (IM) and due diligence will cover a lot of
believe that you are going to be around for the next renewal, or in five years
similar ground, but potential deals with a good IM will be prioritised by
time when they have a claim, they are more likely to be seduced by other
experienced buyers and it will lay the ground work to smooth the due
offers. Equally, staff will become nervous and look to other brokers and
diligence process to come.
insurers for more security.
There are a number of issues that can cause a deal to run into long
grass or a valuation to plummet. Get skeletons out of the cupboard to keep
credibility. Gaining a reputation for a lack of transparency will harm the Top tips for a successful sale
chances of a successful sale.
● Timing is everything - leave enough time to succeed, but don’t
Beauty is in the eye of the beholder
drag out the process
● Devote yourself to the detail - it may be dull but it will pay off
Selling a business is an emotional decision and almost all vendors have
● If you lack experience, hire it in
strongly held views on price – whether it is what has been achieved by a
● Motive not multiples determine value - it’s more about
competitor or past offer. But getting fixated on one number can be
negotiation than valuation
dangerous.
● Get any bad news out early
Many vendors have been surprised to find that a business they thought
● Be clear on who has money and what they want for it
was attractive is not worth what they thought because it is in a sector that
● Maximise the amount of cash today - tomorrow is another day
is temporarily unfashionable. On the other hand a complementary business
● An auction will reveal the full pricing potential
may pay more than expected for a customer base, brand name or reputation.
● Get the right people into the right place – the value of any
So, you need a broad population of potential purchasers.
business will increase
An auction is often the best sales process to follow, ensuring you get a
● Be seen and heard - don’t let the rumour mill do the talking
better price and everyone moves at the same pace to an agreed timetable,
6 Insurance Brokers’ Monthly
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