Today's Viewpoint: A MarshBerry Publication

The value agencies and brokers use for internal perpetuation is usually lower than the value potentially attainable in an external sale — but it doesn’t necessarily have to be by a wide margin.

While a strategic buyer may ultimately be able to offer a higher multiple, there can be a substantial impact from the agency not making the requisite changes internally that drive earnings. MarshBerry’s experience shows that an agency should seriously consider making these changes to help bridge the gap between internal value and external value. In an external sale, a buyer will often give credit to a seller who makes changes to an agency concurrent to closing. Coincidentally, they are likely to be the same changes required for an agency to develop a long-term, sustainable internal perpetuation plan.

Perpetuation is a continual series of activities and transactions, not a single event. It is the perpetual process that can give long-term sustainability to a company by gradually and continuously transitioning ownership to the next generation. Perpetuation requires a defined plan that includes details about people, commitments, value, cash flow, and funding. Ultimately, the goal of a perpetuation plan is to maximize value for both sellers and buyers, and to build an internal market for an agency’s stock.

A successful perpetuation plan requires a relentless focus on revenue growth and expense discipline in order to deliver enough after-tax cash flow to fund shareholder buyouts. Traditional buyers typically have a lot of experience in this area, effectively helping owners carry out the difficult task of making these necessary changes. Some examples of expense reductions many buyers would implement post-closing include increasing the Small Business Unit (SBU) threshold, setting producer commission rates to market comparables, terminating or redeploying non-performing producers and service personnel, managing selling expenses and unnecessary client spending, and reducing owner perks.

The approach requires finesse, and such changes cannot be made overnight. But when done properly, the financials of the firm can be optimized, and higher profitability can be realized for the benefit of both the seller and the buyer.

Many of the necessary changes can be a challenge to implement, which is why many independent agency and brokerage owners fail to follow through with them. In an external sale, a buyer may require a seller to make these changes concurrent to closing in order to increase and sustain profitability to justify the transaction price. Agencies that make these changes on their own, however, may have the opportunity to get the best of both worlds: they can potentially increase their internal value and maintain independent ownership.

If you have questions about Today’s ViewPoint, or would like to learn more about how MarshBerry can help your firm perpetuate, please email or call Eric Hallinan, Director, at 949.234.9652.


MarshBerry continues to be the #1 sell side advisor in the industry (as ranked by S&P Global). If you’re considering selling your firm, we are the best choice to help you through the complicated process. If you don’t hire MarshBerry, hire a reputable advisor that can help you navigate one of the most important business decisions you will ever make. You will be much better off having an advisor in your corner that knows the industry than trying to do this on your own. 

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