NU Online News Service,
May 18, :00 p.m. EDT, Elizabeth,
N.J.—Don’t count on selling your
insurance agency for eight times its
value the head of a financial consulting
group advised participants at an
industry conference here.
That was the message of
Robert J. Lieblein, president and chief
financial officer of WFG Capital
Advisors based in Harrisburg, Pa., when
he addressed a group of agents and
brokers.
Mr. Lieblein told the
group that few agencies are seeing
purchases in agency value multiples
above eight times value, either based on
EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) or
revenues. In most cases, he said the
range is between six and seven times the
agency's value.
“There is a real
disconnect,” he said, commenting on what
he feels is misinformation on the state
of the merger and acquisition market.
“There is too much focus on [the above
eight times] mark.”
His comments came as part
of a daylong WFG seminar entitled,
“Mergers & Acquisitions, And Other
Strategic Alternatives To Maximize
Shareholder Value” sponsored by National
Underwriter.
Mr. Lieblein said there
are also a number other issues affecting
the sale of agencies, both internal and
external.
The impact of the
softening market and questions
surrounding the future of contingency
fees is affecting agency value, he
noted.
While an agency may have
shown terrific growth during the
hard-market, it must now demonstrate
that its growth was not based solely
upon rising premium rates in order to
keep its value in the eyes of buyers,
Mr. Lieblein advised.
He noted that agencies
may show through the beginning of 2005
that their agency performed well only
because their financials have yet to
indicate the pricing from renewals.
“For 2005, things are not
looking very pretty,” he said. However,
he added, that he did not believe this
would turn out to be a prolonged
soft-market. He said carriers are
conscious of the need for underwriting
profitability and are not inclined to
pursue the patterns of the past.
He said he expects that
2005 “will be difficult, but I do not
believe this [soft priced] market will
extend out over 18 to 24 months.”
The investigations into
contingency fees begun by New York
Attorney General Eliot Spitzer is
affecting agency value by creating
uncertainty over some aspects of
earnings, he continued. There is fear,
among some, that the contingents will be
eliminated, making agencies less
profitable.
“I don’t think
contingents will go away,” said Mr.
Lieblein.
He felt that the eventual resolution of
the issue will be greater transparency
and disclosure by agents and brokers,
adding, “If that’s the worst that
happens then we are in good shape.”
However, he and others in
the audience were critical of Joe
Plumeri,
chairman and chief executive officer of
Willis Group Holdings, for his
proclamation that he would pursue a
policy of getting rid of contingency
fees throughout the industry.
Mr.
Lieblein
called Mr.
Plumeri’s
announcement “self-serving” designed to
“their advantage.”
The abandonment of
contingent commissions by the major
brokers, Mr.
Lieblein said,
would mean that they must pursue other
avenues to increase shareholder value,
and the avenue of growth these brokers
are surely to look at is acquisitions.
But, he warned that few
firms are able to successfully integrate
the culture of acquired firms into their
own.
Mr.
Lieblein
cited the insurance brokerage firm Brown
& Brown, based in Daytona Beach, Fla.,
as a notable example of one of the firms
that is able to make a considerable
number of acquisitions and integrate
them successfully.
Mr.
Lieblein
said the point of the day long seminar
was to get clients to face issues
confronting them concerning the value of
their agencies, and to think about how
they can go about enhancing them.
