What Am I Worth?
These are questions that are reeling through owners’ minds in today’s vibrant merger & acquisition (“M&A”) market, where buyer demand, jawdropping multiples and record numbers of deals are piquing the interest of privately-held business owners that might have never considered selling before.
But the reality is, even if these questions aren’t top of mind for some insurance agency owners who may truly have little or no interest in entertaining deals, all agency owners should understand what their business is worth. Unfortunately, there is a great deal of misinformation and oversimplification regarding independent agent and broker valuations. “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.” Samuel Clemens (aka Mark Twain) said it, and firm owners have learned this lesson the hard way for generations. What you think you know about your business’s value could negatively impact how much you actually realize from its eventual sale. Consider the reasons why homeowners hire a realtor to represent and sell their homes for them. An agent helps them price the home appropriately, so the owner doesn’t leave any money on the table or ask so much that their listing is blacklisted.
In the current M&A environment, there are plenty of sellers who think they know their value and feel they can handle a deal without an advisor. They’re not hiring a “realtor” to guide them through accurate valuation, due diligence and deal negotiation because the booming M&A market deceives them into believing they simply can’t go wrong. We have seen many cases where a buyer has made them an offer that exceeded what they thought their business was worth but the offer was in fact below market. Based on our experience, firms that believe they “know their value” are usually misinformed. This can be a risky position for an owner who is selling their most valuable asset. Even if selling is not on the radar, a clouded view of value can interfere with making strategic business decisions.
As a society, we put a value on everything, and some things are easier to value than others. Property can be valued by consulting the Multiple Listing Service (MLS). Publicly traded stocks are easy to value because they are traded on open markets. Even personal property like automobiles and jewelry can be easily valued. Privately-held businesses, however, are much more challenging to value. That’s because there are a range of variables that impact value, and lots of misconceptions about what real value means and, most importantly, how to maximize it.
Want to know what you’re really worth? Let’s dig in.