Over the last several years, insurance agency mergers and acquisitions (M&As) have accelerated. Although M&As have slowed down somewhat this quarter, private-equity-backed firms and private brokers continue to make deals.
Agents sell for several reasons: Principals may be looking to retire in the next couple of years, while some may want to expand their geographic footprint, achieve economies of scale with the support of a larger entity, or focus on sales and offload the operational aspects of running an agency. Whatever the reason, before embarking on the M&A journey, it’s important to consider several factors beyond the deal’s financial structure so that you choose the right partner. This includes determining how a potential deal may affect your agency’s staff, processes, culture, and clients.
According to Harvard Business Review, about 30% of staff are deemed redundant after an M&A in the same industry. Agency principals must consider how talent changes will impact their employees, including those who will not remain on staff after an acquisition. Tough conversations must take place. But there is also an opportunity for growth for employees who want to take on more responsibility in a larger operation, as typically there are more resources available for cross-skill training and upward mobility. It’s important to communicate with employees about the M&A and its potential impact on the agency’s staff – good and bad.
Additionally, front- and back-office operational policies and processes may change, requiring the agency’s staff to adopt a new approach. This involves employee engagement and an understanding of the benefits of the new policies in addition to training so that everyone in the agency is on board.
Depending on the acquirer, oftentimes the organization’s culture can shift. It’s wise during the M&A negotiations to get clarity on whether the cultures of the two organizations are compatible and what type of impact a cultural shift, if any, will have on your agency. A cultural fit everyone embraces will contribute to the new organization’s success moving forward.
Don’t forget about your clients in the M&A mix. In announcing the merger or acquisition, let clients know they will receive the same level of service and expertise to which they have been accustomed from your agency. You want them to continue feeling comfortable with the new transaction so they don’t consider going to another firm. Your additional resources, carrier relationships, and product options will enhance your service.