Without A Succession Plan, A Merger May Be The Best Option

By Bryan W. Adams

The facts are undeniable. The insurance industry is aging. A few years ago, a report from management consulting firm McKinsey & Co. reported the average age of a U.S. insurance agent was 59. This set the expectations for an entire industry that a quarter of its work force would retire around 2018. Retiring or not, the aging of this industry brings up an important truth: Many agents who’ve built successful businesses are now finding they must put a plan in place to guarantee their agencies will continue to grow and thrive when they want to spend less of their golden years working.

Succession Planning Isn’t Always Easy

There are so many reasons for having a solid, thoroughly vetted outline in place when the agency’s principal wants to step down — but it’s not always as easy as you’d expect. Agencies don’t always have a natural successor in mind, and sometimes when they do, their heir apparent may not yet be of age, licensed or qualified with the right amount of agency product, operations management, human resources, accounting and marketing knowhow. Another big consideration - it’s important that the successor has the resources to assume the business.

It’s why many agencies have selected a different route. Here’s an example.

In May, Minneapolis-based GoldenCare USA joined Integrity Marketing Group. GoldenCare’s founder, Lenny Anderson, chose Integrity for its similar partnership philosophy and the decades of history he has had with many of Integrity’s partners.

Why A Merger Can Be A Smart Succession Plan

One of Anderson’s most significant succession planning concerns was how his legacy would continue to grow, how he could take some of his equity out of the business, and that he wanted to stay involved with his company and its management.

As for his legacy, Anderson can now claim that the company continues to operate nationally under its existing brand, and all employees have remained in their current roles — including Anderson, who became an owner in Integrity.

In this type of succession plan, although Anderson was not yet ready to retire, he was able to taste the “first bite” of the apple, with the financial security and liquidity of the business he worked so hard to develop over 41 years and not step aside until he desires. This model allows him to take some of his chips off the table, but stay in the game. As an active investor and leader in the company, he also has a chance at a “second and third bite of the apple” on a larger scale and in the form of upside opportunities that arise with the new team and partnership.

Economies Of Scale

These kinds of mergers serve as a positive succession planning option because they provide sellers with the opportunity to benefit not only financially, but also strategically and operationally. This option allows the focus to be on growth and best practices, instead of on operations.

• Strategically, agencies that enter into this sort of model of succession can benefit from shared carrier relationships and product development, aggregating volume across top carrier contracts and products. They can leverage sales and marketing capabilities, best practices and centralized technology, such as carrier and agency management systems that can help streamline business processes and drive new business.
• Operationally, the agencies move their financial books to a centralized accounting function, so they get managed by a team. The consolidation allows for a more efficient approach to back office functions such as company finances, audit and payroll, including improved employee benefits and tax administration. By centralizing this information, the company does a better job of budgeting, financial planning and financial analysis for the company than the agencies could ever do for themselves.

Sometimes going a non-traditional route and forgoing the typical plan of leaving your agency to heirs means reaching a higher potential than an agency owner could have ever imagined.

Bryan W. Adams is the cofounder and CEO of Integrity Marketing Group. Bryan may be contacted at [email protected].

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