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Planning on Hiring an M&A Advisor to Help Sell Your Insurance Agency?

3/16/2015

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“Should I hire an M&A Advisor to help me sell my insurance agency?”  This is a common question many agency owners ask themselves when they first start thinking of selling their insurance agency. 

In an effort to answer this question professors Anup Agrawal from the University of Alabama, Tommy Cooper from the University of Mississippi, Qin Lian and Qiming Wang both from Louisiana Tech University analyzed a sample of 4,468 acquisitions of private sellers during the period of 1980 – 2012 to examine the decision and the consequences of hiring sell-side M&A advisors.

The Results Bode Well for Intermediaries

In their study entitled
 Does Hiring M&A Advisors Matter for Private Sellers?, it was discovered that “private sellers receive significantly higher acquisition premiums when they retain M&A advisors.” Although “top-tier” intermediaries offered the highest acquisition premium, the benefit of the M&A advisor held true across all deal sizes.  Professor Agrawal stated, “Our findings suggest that the hiring and reputation of M&A advisers improve private sellers’ bargaining power and deal valuations”.

M&A Advisors Create Competition

The higher acquisition price derives from an M&A advisor’s ability to run smoother processes with better buyer lists. Business intermediaries have greater economies of specialization and information acquisition, and have lower search costs than their clients. A smooth process means that the M&A advisor is particularly adept at keeping multiple, relevant bidders engaged simultaneously. This concurrent interest from several interested parties is critical to obtaining the best sale price.

“Previous studies find that bargaining power is a significant determinant of the magnitude of private company valuations,” wrote the professors. “A key determinant of the seller’s bargaining power is the number of competing bids it receives.” Like supply and demand, “a seller has more negotiating leverage when a prospective buyer believes that it is competing with other bidders.” An M&A advisor helps drive acquisition premium by driving competition.

Best of all, the competition doesn’t even need to be real. According to Professor Agrawal, the mere presence of an M&A advisor can induce a sense of competition. “An M&A advisor can influence the attitudes and assumptions of bidders. If a seller only has one strategic buyer interested in purchasing the company, using an M&A advisor can give the prospective buyer the impression that there are competing strategic buyers against which it must compete to acquire the seller.”

Extra-Valuation Benefits

Overall, Professor Agrawal explained, “A sell-side advisor can identify strategic buyers, evaluate the reasonableness of a bidder’s offer, manage and pace concurrent negotiations with multiple bidders, reduce the information advantage that a seasoned acquirer has over a private seller regarding the M&A process, and represent a private seller in negotiations with potential buyers.”

Additionally, advisors help keep you focused on running your business — a vital part of any sales process. They do not let the transaction become a distraction that negatively impacts business performance during such a critical period.
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Do You Know Your Competition?

3/6/2015

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As your business grows so do your competitors.  No matter what industry you are in there is a constant change in supply in demand.  Therefore, in order to continue to grow you must stay on top of your competition and understand what is going on in your market.

Do you know your competitor’s marketing tactics, how they compensate employees, what additional services they provide, and their prices?  There is a lot more to it than simply creating a one-time competitive analysis that reveals your competition and what they are doing.  This should be an ongoing part of your business.

With so much information being online it is now much easier to keep track of your competitors.  However, websites, google searches, and social media do not reveal all of the information that maybe needed to track your competition. That is why it is still important to talk to you clients, both current and past, as well as to get out into the community to get a feel of what is going on real time.  This could be attending conferences, trade shows, or events.   

Without knowing your competition and their current strategies you could be falling behind and one day be left in the dust.   

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    Jeremy Hovater

    CEO
    Sunset Insurance Group

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