Buying IA - Current Multiplier?

[ArizonaJenn]

I am currently captive and considering the purchase of an established, healthy IA. I know there are a plethora of variables, but given:

*Seasoned 20+ year IA book in same Arizona location
*1.8M Premium/$220(ish) commissions, all personal lines
*45% LR
*91% retention
*Cash Purchase

What would be the going multiplier? 2.5 is the asking, but seems high to me. Thank you for your response!

[golongd]

Sounds like you have done your homework. Seems like it is a bit high asking price for being weighted so heavily in personal lines and paying cash. I guess I would also want to know what kind of deals they have on the profit sharing side as well as what the carriers they represent look like. Are they willing to stay on and help you with transition? That would be worth a thought also. Also, ever consider starting your own IA from scratch? check out something like this in your area. http://www.miaainsurance.com Best of luck to you!

[skiier32]

Also check out http://www.insuranceproducersnetwork.com. Best contract in the business!!

[AgencyEquity]

Each books is different, multipes are all over the map dependent on the book. Its seems like more valuation professionals are using EBITA or doing valuation based on net income, though it may make sense to look at book multiples only if an existing agency is buying out another agency and their expense structure from the acquisition is not going to increase significantly. If you are looking at buying or selling an agency, make sure to use a valuation professional who knows our industry, you can find a list of these professoinals at http://www.agencyequity.com/categories/ ... appraisals

[insurancechandleraz]

Hopefully you have found an insurance agency that is right for you. I prefer the independent route. I have been an insurance agent in Arizona (in the Scottsdale AZ area) for over 12 years. I think you will enjoy it.

[robmejia]

This valuation is very subjective and there will be a variation in people’s attitudes and opinions for the valuation figures. But mostly, for insurance agencies it's usually based on 100%-125% of annual commissions

[Swymmer]

There are so many variables! Agency Equity is right... hire a skilled professional that knows how to value the independent agency. Whenever I hear of an agency for sale I'll do my own EBITA computation... I basically look at the income, take away the actual hard costs including a salary for the agency manager (even if it is you, calculate what you'll pay a reasonable person). Then I look at the attributes of the agency... blue sky, carriers, employees (with non-competes?), niches they work, etc... Apply an appropriate multiplier to that. for example, $500,000 gross agency income, all commissions. Less $200,000 in "hard" operating expenses, less $75,000 for a manager's salary = $225,000 EBITA. If the attributes all are positive... neighborhood, loss ratios, employees, niches... you name it... then apply a multiplyer of 5 to 7.

If the agency doesn't have much "net" income (or shows a loss) after deducting the expenses, run!

After I compute my basic calculation, I hire a pro to dig deeper into agency/carrier relationships, etc...

In this way you will pay a fair price for you, and for the selling agency owner. Good Luck!

Swymmer