Before you acquire an agency, make sure you acquire agency experience.I was recently contacted by a smart young agent who had come into the business through his father, learned the trade, and received a promise of financial backing for the acquisition of an agency. Moreover, he had formed a relationship with a strong local agency and now felt capable (after one year) of going after much larger “game” — “elephant hunting” was his term for it — with respect to agency size. Knowing that we participate in many transactions every year and value hundreds of agencies, he contacted me asking for advice and help in acquiring an agency.
I'd like to share my answer to him:
“It's always good hearing from an 'elephant hunter.' But your story reminds me of another, similar one about a real hunter. He was brought up around guns all his life but wasn't permitted to shoot them because his father knew that being a successful hunter requires maturity of judgment as much as physical prowess and skill. Yet, the young man was certain that he could shoot and was ready to go after game, just like hunters with dozens of years of experience.
“Finally, his father relented and taught him the techniques of hunting and the skills of shooting. The young man caught on quickly and passed all of the tests given him. After his tests were completed, he was permitted to go hunting with experienced hunters and did quite well. All considered him a potential hunter with great promise. Soon after his 21st birthday, he moved from his parents' home with a gift from his father, a high-powered rifle, with the warning that he must only go shooting with other, more experienced hunters.
“The young man, as most young men do, felt that he had the skill, the talent, and the education to hunt, and that the older hunters would just take the trophies (and the glory). So he decided to go elephant hunting on his own. After all, he'd been on six expeditions and had bagged game every time. The others knew that he had promise. Now he would show them that he was ready to be their equal.
“After a few days in the wilderness, he came upon a perfect target, a mature elephant feeding. The young hunter set himself up and prepared to pull the trigger. He just had time to feel the hot breath of the bull elephant behind him before the beast crushed him underfoot.
“The moral of the story: Although skill, knowledge, and desire are important — nothing beats experience, and someone guarding your back.
“You're young, smart, probably aggressive and talented and have hooked up with a fine firm. But don't mistake the financial wherewithal and a good start for the knowledge base learned from years of experience when it comes to buying and running an agency. The impact of a bull elephant is nothing compared to that of a smart and wily competitor facing a ‘young buck' in the insurance sales arena.
“I suggest that you hone your production skills in your current agency and ask for and assume some management responsibilities, a little at a time, until the current owners tell you that you can run the agency as well as they can. Then become their perpetuation. If that proves impossible, consider making the contacts to acquire. You see, acquisition isn't just a matter of desire and money. A seller (except unscrupulous ones who are just interested in getting the money and running) is seeking specific things in a buyer — over and above their ability to pay.
“Many sellers have ties to their clients and suppliers that supersede simple business. It's a matter of reputation. They're concerned that the sale of their agency reflects well on them in retrospect when they encounter their friends (their clients). They intend to continue living in their communities with the results of their decision even though they have little control of how the buyer will act toward their employees and their clients. They also expect the buyer to bring such strengths as a better staff, extensive experience in similar markets, and strong relationships with carriers (both existing and new ones) that will secure the retired owner's financial future even better because of the options that the new owner brings to the table.
“Most new, and small, agents who contact us with dreams of acquiring their way into agency management fail to understand that it isn't just money that dictates a seller's decision. You're far better off moving forward within an organization and leaving only if you can't become the perpetuator within your own firm.”
We don't want or expect to negate the desires of agents to acquire agencies. But their reasons for doing so, even more than their financial or sales ability, will determine their chances of success.