The two most frequent buyers of insurance agencies today—while markedly different—are faced with the same problem at the core: if they pay the same price for your agency today, that they would have paid just twelve months ago, they will have a lower return. Private equity firms don’t borrow money, but as interest rates go up, their investors expect a better return, so their return on investment must improve in order to keep them competitive with their investors. Traditional buyers that likely borrow funds to purchase, have to pay a higher interest rate. The cost has gone up for both–and prices paid have gone (and are . . .
by Mike Stroman The phone is ringing. Someone is at your office door. Your bookkeeper needs to review receivables and payables with you–today! You need to do three things at once, but there’s only one you. Oops, make that four things—now a marketing rep from your largest carrier just arrived unexpectedly. Who’s first? Usually the loudest, most demanding person gets your attention first, even though odds are that they are not the most important. But who is most important? Even though people are your business, a better question may be, “What is most important?” Income? Profit? Growth? Long-term value? Cash flow? All of . . .
by Mike Stroman Myopic adjective my·o·pic | \ mī-ˈō-pik , -ˈä-pik \ 1 : A medical term for having a condition creating nearsightedness. 2 : A business term for being short-sighted and/or narrow minded : the opposite of having vision. Some business owners confuse being myopic with having a strong business focus. But focused business owners have their eyes on the prize, while remaining aware of other conditions in the market so they can identify opportunities as they present themselves. Myopic business owners don’t consider anything beyond the walls of their office. In order to run a business with excellent . . .
By Mike Stroman Multiples of Revenue Most people would probably say that multiples of revenue are what determine the value of an agency. So, let’s talk multiples of revenue. Is the range of acceptable multiples 1.4 to 2.5? If so, how do we determine where any individual agency falls in that range? Is it just a matter of who demands a higher value? These are great questions that we are asked every week. And the answer to all these perpetual value questions is: multiples don’t matter! We speak of multiples in reference to agency deals that have been completed in the past, and as a value check on an upcoming . . .
By Mike Stroman Over the past year, we’ve seen increases in interest rates by the Federal Reserve, but the increases have been small and implemented gradually. So, is this really an issue in insurance agency valuations? The answer is a resounding “YES!” There are three main effects this rise in interest rates has on agency valuations and the overall agency acquisition market: Higher interest rates take some buyers out of the market. There are two reason for this. First, lenders are not as loose on lending standards in . . .