Maximizing Insurance Agency Value Consulting Case Studies

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When we were first thinking of selling our New England-based agency we reached out to several consultants, including HE Candage. HE Candage’s rates were comparable with the other agencies, but we were impressed by Howard’s experience and expertise and believed that he would be able to leverage the best price for us.

We were equal partners in the agency. My partner ran the insurance side of things, while I was responsible for our financial affairs. I was also on the board of a prominent local bank and they had express interest in purchasing the agency.

We thought the agency was worth about $3 million but Howard believed we had underestimated its value. He also had some reservations about the local sale. But we liked the idea: It would be a straightforward sale and, given my personal relationship, we assumed they would give us the best possible price. Despite his reservations, Howard agreed to offer his services at a slightly reduced rate if we did, indeed, sell to the bank, but if we eventually went to open market, his usual rate would apply. We accepted.

Somewhat to our surprise, Howard estimated that on the open market the agency would reach between $3.8 and $4.4 million. So we agreed that if the bank’s offer was anywhere above $3.6 million we would accept it; anything below that and Howard could pursue other buyers.

The bank hired a consultant from Florida to work through the acquisition on their behalf. It soon became apparent to Howard that the consultant knew next to nothing about the insurance industry. Howard was forced to explain everything—from how to establish the likely revenue and expenses for an agency such as ours, to how he had arrived at his evaluation, and even how to do a pro forma balance sheet.

To our frustration, the consultant worked on the project for six months before coming back with an offer of $3.2 million. Given Howard’s expert estimate we were extremely disappointed. Howard called the bank. They were willing to negotiate the terms of the offer but not the price. He went back to the consultant: He was adamant–he had sought advice from other consultants and their opinion was that the book value for an agency of our size was $3.2 million.

Howard advised us to refuse the offer and to take the sale to the open market. It was nerve-wracking but by then we had come to trust Howard implicitly and so we agreed. Within a matter of days, Howard had opened discussions with another insurance agency that he thought would be a perfect fit for us. The asking price was $4.6 million. Three days later we had a letter of intent for the full amount…cash!

We were overjoyed.

There is no question that had we not gone with HE Candage we would have sold to the local bank for $3.2 million. After all, we had a relationship with them, and we truly believed that they would give us the best price. But here we were, just a few days later, looking at an offer that was 50% better than theirs!

On the day of the closing, I said to Howard, “If only we’d believed you that first day when you told us what we were worth. But we truly didn’t. Thank goodness we listened to you in the end!” Even with Howard’s fees, we had ultimately netted considerably more than we ever would have realized on our own.

We look back at the sale and realize that we were surrounded by people who knew their own business: we knew insurance and how to run an agency; the bank knew finance and how to invest it; but only HE Candage understood the complexities of valuing and selling an insurance agency.

Howard has since told me that, in 20 years, he has negotiated nearly 300 agency sales and in every case has achieved a higher price than originally anticipated by the seller. I hope the next agency takes his advice quicker than we did—it’ll save them a lot of time, and make them a whole lot more money.

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