The Mis-Match Game

Roger Thomas of Thomas & Thomas Agency Consultants and Appraisers, Inc. in Livingston, Tex. stresses planning as the key in any successful marriage. For insurance agencies, Thomas narrowed the areas of concern to four:

Pre-planning: Established roles and areas of responsibility for positions that will be duplicated under a combined organization.

Corporate Culture: Both parties must agree on a clear vision for the future, including the type of business and the clientele.

Poor Financial Planning: Many mergers suffer financially because they do not consider the resources for transitional costs, including computer and management systems as well as the need for additional office space. These “surprises” can add up to tens of thousands of dollars to the cost in the first year after the merger.

Lack of due-diligence: Thomas preaches the important of having an attorney and a consultant as an integral part of the merger process. “Not having these professionals just increases the probability for misunderstandings that could result in litigation,” he said.

He said most owners hope final papers can be signed in as little as 30 days, but, in the real world, transactions can often take from six to 12 months to complete.

First-round draft choice
Consultant Chris Burand of Burand & Associates in Pueblo, Colo. suggests that the term “merger” may be misleading. Even if both parties can agree on the percentage of ownership, the broker who ends up with either 10 percent or 49 percent of the business often feels left out of the decision-making process.

Burand likes to compare a merger to a first-round draft choice in professional sports.”Most people do not want to admit they made a mistake,” said Burand. “That’s why some of these doomed relationships can last as long as five years, sucking good money right down the drain.”

66 questions

To avoid mismatched agencies, Mary Eisenhart, a managing partner with Agency Management Resource Group of Lincoln, Calif. and Portland, Ore. and her partner, Cheryl Koch, administer a 66-point questionnaire to prospective buyers and sellers. They encourage partners to follow-up after the sale with brown bag lunches to discuss challenges and share success stories from the personnel from each office.

When agencies do merge, Eisenhart advocates change. New management is an ideal time to shed “excess baggage” in the form of under-producing employees. She also thinks a new location can provide a clean break from the habits of the old incarnation.

R.I.P.
Kevin Donoghue of Mystic Capital Advisors in New York, added that banks cannot afford the possibility of an agency owner who qualifies for the slang term R.I.P. (Retired in Place) while the owner goes off to count the money. New owners also face the realistic possibility of severe amounts of turnover, according to Donoghue, who suggests that agencies may lose up to 40 percent of their employees within the first year, regardless of who buys the firm.

“Buyers need to handcuff employees to the agency to help make the transition successful,” said Donoghue. “Buyers are faced with the real possibility of losing the bulk of a book of business when agents leave for greener pastures.

“This is a people business. People buy insurance from individuals, not companies.”