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Today's Viewpoint: A MarshBerry Publication

With few exceptions, it seems like most clients truly enjoy being owners of an insurance firm. Some enjoy the entrepreneurial and strategic nature of owning a business. Many appreciate the opportunity to recruit, coach and mentor young talent in the sales process – or by developing new relationships. Others find purpose by being in a noble business of helping protect their clients. No matter the reason, the insurance business is a great career for many. Thus, when it is time to contemplate retirement, either via internal business perpetuation or a sale to a third party, it can be a difficult conversation that often gets kicked down the road.

For internal ownership transfer, the entire organization should be working in collaboration toward a goal to achieve internal perpetuation. Owners must be transparent with their retirement plans not only to allow for the perpetuation of stock, but leadership change and reallocation of books of business. For an owner, it is essential to establish a timeline and determine various milestones to achieve over many years if internal perpetuation is to be a reality.

Many owners are also under the false impression the external market is filled with buyers that will overpay for a revenue stream with little regard for what happens to the shareholders and employees. This is not the case. The transactions that generate the highest values are often those firms that have young, strong leadership that are passionate about helping a buyer achieve unprecedented growth post-sale.

If an external sale is the preferred perpetuation method, then firms need to start the preparation work – now. The longer an owner continues to lead an organization post-close the less risk a buyer will assess in the transaction. Continued owner engagement can translate into a higher purchase price, often reflected in a higher guaranteed value paid at closing. If an owner is planning to slow down, or retire shortly after selling, not only will the purchase price most likely be discounted, but there will potentially be fewer buyers interested in acquiring the firm.

Designing and Implementing a Perpetuation Plan Tailored to Your Needs

Ownership should always be planning for the next perpetuation event, no matter how far away it seems. Identify your retirement goals, and key dates, to determine the best path for your firm. If positioning for an external sale is the best strategy for your firm, it is never too early to take a hard look at business operations in order to maximize purchase price, take advantage of a diverse buyer pool, and find a partner that is a good cultural fit. Waiting too long could significantly hinder these objectives and your chances at a successful ownership transfer. If internal perpetuation is preferred, assisting the next generation of owners with capital planning can become a key component to a successful transition. This perpetuation goal can potentially be achieved by facilitating the next generation’s equity purchases, presumably completed over longer periods of time, with the assistance of some type of company guaranteed loans provided by a third-party lender, especially if the next generation does not have funds immediately available to buy out retiring shareholders.

To bring you meaningful and timely insights into how insurance brokerage firms are performing, MarshBerry periodically conducts Market Pulse surveys. Pulse surveys are intended to capture industry sentiment and insights around a particular topic. This week – we’re looking for your insight on perpetuation. Take a 1-minute MarshBerry Pulse survey to have your thoughts included in the industry’s outlook.

If you have questions about Today’s ViewPoint or would like to learn more about perpetuation options in the insurance marketplace, please email or call Christopher Darst, Senior Vice President, at 949.234.9648.

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