General insurance brokers are in danger of selling their business for less than its full value due to poor planning and a failure to keep up with technological advancements in the industry.
“Our experience is that businesses just close or are sold without the owner realizing the full value of it,” said Andrew Pavuk, principal executive of law firm Pavuk Legal, and author of Nobody else’s business. “Whether the brokers are big or small, the same problems exist.”
Pavuk said intermediaries often undervalue their business because they fail to grasp fully how much their clients conduct business online.
“There is a huge disconnect in the industry,” he says. “Brokers are under pressure to transact with clients online but some do not really know how to work with clients online.”
Brokers’ failure to keep up with technological advancements is fuelling M&A activity, Pavuk said.
“M&A activity is prolific at the moment and that activity is boosted by disconnect in the broker market,” he said. “Buyers are looking at the businesses that have not positioned themselves well to sell – businesses that have not adapted to their new environments. Therefore, brokers on the market are underselling themselves and the buyer can get a better price.”
Increased M&A activity may also be prompting brokers to sell before they are ready.
“A lot of people see increasing M&A activity and think it is the right time to sell,” said Pavuk. “But because they haven’t prepared to exit, they won’t get the value they could out of the business.
“Some people just wake up one day and decide they will sell their business by the end of the year.”
Pavuk urges sellers to carefully prepare for exit and not just put up the “for sale” sign and assume they will get top market dollar for it.
How should you prepare? He advises brokers to follow these steps:
• Prepare a timeline
“It can take years to sell a company. It took one company 10 years to sell.”
• Work out who your prospective buyer is
“Is it another broker? An aggregator? An entrepreneur? Be sure who they are and market your business accordingly. Sellers will look for a business model that can easily transfer or fit into their own business model.”
• Be relevant
“Those companies that keep up with the times and trends will always get greater value out of their business than those who do not.”
• Do your homework
“Understand your business. Only once you truly understand it, can you understand your exit strategy.”
