Buying and Selling: 5 Tips for Successful Agency Transactions

You are going to sell your interest in your agency at some point. Whether the sale is internal, external, to a family member, employees, or to a large national organization, there are steps you can take in advance to make sure the transaction is a success.

Along the way, you may also be the buyer of one or more agencies. In this situation, you will also have a huge stake in a smooth transaction and transition. While a buyer and seller have fundamentally different interests in any transaction, they also share many common goals. Consider these five best practices ahead of a sales transaction to help ensure it goes as well as possible.

1. Be clear about what you want.

I often talk to agency owners about business issues, including the possibility of buying or selling, and find they haven’t really thought through want they want to achieve from the transaction. Often, they answer something like “the best price” or something similarly vague. Failing to clearly define what you want often leads to a less-than-satisfactory transaction. The deal could have been better structured in terms of the selection in buyer or seller, the transition period, the interregnum period when the previous owner is still around, terms and conditions or simply sales price.

Buying or selling an agency is perhaps the most important financial decision you will ever make and the decision should be approached as such.

• Consider what your “best price” looks like.
• How might your view on price change if you received more appealing terms and conditions?
• What do you want the transaction to do for you and your family, or your continuing agency?
• What do you want to happen to your employees?
• Do you want a clean break with either the former owners or the buyer after closing or the chance for the former owner to stick around? For how long?

As you think about what you want, I suggest tracking it all carefully on paper. Then, build a checklist of your priorities and line it up beside any potential deal. This will help you select the best seller or buyer, help you make the best deal and importantly, help you to avoid the pitfalls of a transaction that awaits the unprepared.

2. Prepare.

The Boy Scout motto is “Be Prepared” and one of the reasons that scouts become as successful as they often do in life is that they take that seriously. By thinking and planning ahead, they are prepared for what may come. In becoming an Eagle Scout, you’ve demonstrated that you have mastered those skills. In the same way, successful business owners can demonstrate that they have mastered the skills of building their business, positioning them as an attractive seller or buyer.

Prepare your leadership.

• If you’re the buyer, have you prepared not only yourself, but your team, to manage a larger, more complex organization?
• Have you identified, recruited, and mentored those who will need to step into new positions of leadership?
• If you’re the seller, have you developed a team of people who can lead when you’re gone if you’re perpetuating internally, or have you thought about what great leadership for your remaining employees looks like after you’ve retired?

No transaction, from the buyer or seller perspective, can be as good as it can be without solid, well-prepared leaders.

Of course, employing the use of management systems, financial understanding and capability, key personnel, and others can also be helpful in this process. The key, whether a buyer or a seller, is to understand what is required and work years ahead of a transaction to be prepared for it.

It’s often said that you should run your agency as if it were for sale. That implies innovative systems, impressive people, strong books of business, comprehensive accounting and smart owner compensation. That way you’re prepared for when the time arrives — even if it’s unexpected. At the same time, the same tenets of preparation apply to a buyer. Having your leadership, systems, people, profitability, balance sheet strength, financing, and many other aspects of the business in top form puts you in the position to seize opportunities as they come.

3. Look for chemistry with a buyer or seller.

Our best clients are those with whom we have a relationship — those who see value in us beyond the transaction. The best buyer and seller relationships involve parties with similar chemistry, respect and alignment of values and goals. If you aren’t clear about your own values, the culture you are continuously trying to create and the kind of people you will, or will not, engage for business, now is the time to think that through.

When you are aligned on these ideals, it can be easier to come to agreement on the mechanical parts of a deal. With chemistry, trust will arise organically and this can be the difference maker in a good or bad deal. It also allows for the whole exercise, whether buying or selling, less stressful, more rewarding, and much easier.

Don’t buy an agency from someone you don’t like and respect and don’t sell to someone who you don’t believe shares your values. Without a good relationship built on the front end of a deal, nurtured through the negotiations and transition and finally, affirmed afterward, you’ll be entering into something you will likely regret.

4. Perform comprehensive due diligence.

You are clear on why you want to do a deal and what you want from it. You know the buyer or seller. You’ve built a relationship. The numbers look good. Let’s go!

Not so fast.

You are going to live with the results of this transaction for a long time. It is either going to make your financial future what you want it to be, or it could ruin it. Understand everything that has led up to a Letter of Intent (LOI) — typically a non-binding agreement that spells out the broad provisions of the deal — must now be proven by the buyer to the seller’s satisfaction. And the seller has to demonstrate to the buyer that he or she is the person they have represented themselves to be. Only after you’re completely satisfied, should you move forward.

5. Engage experienced advisors.

I’ve seen many deals fall through because the lawyers weren’t good psychologists or because they seem to think covering the downside is more important than balancing interests. These flaws come from people who don’t have much experience in helping someone transact the opportunity of a lifetime. Find someone with ample experience in transactions like yours to represent you.

Understand that the LOI is just the beginning of negotiations. The details that come after, in the contract, are critical to both parties making the deal work over the coming years.

Some of those details are related to tax treatment and the buyer’s and seller’s interests are often opposed to each other. A good tax advisor, who focuses on transaction work and doesn’t simply handle tax returns, can help both sides get what they need, as well as clarify what they should expect.

Finally, consider engaging an investment banker to assist on either side of the transaction. Yes, they can be costly. But in almost all cases I’ve seen they make both parties far more money than they cost.

When it comes to buying or selling, you may only do this once. Do it right.