The last decade has shown multiple record-breaking years for the number of independent agency sales. According to Optis Partners, an investment banking and financial consulting firm specializing in the insurance industry, the most active buyers taking the lead in last few years have been private-equity backed firms. Bringing up second place for buyers are private brokers, followed by public brokers in third.While selling to one of these groups may be a great financial move for owners, many of these transactions are wrought with issues. Unanticipated issues on behalf of both parties. Obviously not all of them are tales of woe, but many carry the weight of frustration for themselves and/or their teams. But this is largely avoidable by going into the transaction process with ideas and questions and curiosity about how other M&A activity has fared with the buying company.

Promises are meant to be broken?

Promises are often made as part of the selling process. And please recognize that people who seek out agencies for acquisition are sales people and agencies being acquired are the ones being sold to or making a “buying” decision – buying the terms of the offer.

However, a lot of the promises of the new nirvana are just not possible to keep. 

Promises like: Everyone gets to keep their jobs and no one will really notice any difference. This is hardly ever the case. It may remain that way for a while, but then things begin to change.

  • A review of redundancies is conducted and jobs are eliminated, as probably they should be.
  • Payroll and HR systems are merged and then pay structures (including bonuses, benefits, and retirement programs), performance management policies, and roles/job descriptions change.
  • Responsibilities are shifted and clients are given new points of contact.

Reality check – of course there will be changes! There are new owners. If the acquired agency buys into the idea that there won’t be changes, they’re probably trying to make themselves feel better about an uncomfortable decision they’re making.

But for those who have thought through an acquisition model and seek out this end game, then they generally go into it with a realistic idea about how things will work. They don’t get upset by changes, but embrace and help shape them.                     

It takes two to fight

We see both the acquiring parent company and the acquired agency participate in ways that have negative consequences for the employees, the clients, and the company.

  1. Lack of direction: We’ve seen a complete hands-off approach to integrating new agencies, yet the agencies buying into the acquisition dream were looking for direction and management from the new parent company and their vast resources. Yet in reality, they’ve ended up with nothing more than a new set of goals to meet (now with revenue payouts) and no help to get there.
  1. Overbearing oversight: And in other cases we’ve seen the acquiring company impose incredibly rigid, suffocating structure. For a sales team it might be requiring minimum cold call dials to be completed and reported on a daily basis – owners included. For service teams it might be strict time and attendance policies and oppressive behavior expectations.
  1. Culture failures: Culture is the purest indication of future performance, yet it is one of the most overlooked parts of the acquisition process. It’s common to hear agency frustration about merging teams, but it’s equally common to hear that culture was never discussed during the courting and selling process. A typical complaint is about team members (often producers) who do not want to be part of the new organization and refuse to change. They carry hostility and generally make everyone around them miserable.
  1. Wall Street-esque budgets: We see owners take on such a tight EBIDTA watch to achieve their final buy-out goals and bonuses that they decimate the organization to earn their pot of gold. All hiring is frozen. All third party relationships, networking, and educational resources are immediately cancelled. Travel expenses are cut off. Everything becomes about the bottom line at the end of the buy-out period. 
  1. Clients leave: And finally, a big unanticipated problem comes from clients who are strictly loyal to the producer and/or account manager they know. When the acquisition takes place and these clients get a different type of interaction with the producer and/or beloved account manager, or they get re-assigned to someone new, then the clients go looking for a new relationship altogether, often not giving the new agency a chance.

Think this doesn’t apply to you?

If you’re looking at an acquisition from either side and think these things will not impact your team, you’re wrong. It’s just a matter of which ones and how severe the impact. A lack of planning and mis-guided incentives will create situations you don’t anticipate.

Make the transition work for you

I’m astounded at the lack of forethought and organizational planning that goes into these transactions from both sides. I’m sure the numbers are well crunched, but the vision, strategy, culture, and team development are too often overlooked as insignificant or irrelevant, yet these are the very things that will alleviate many of the failed scenarios described above. While you can’t anticipate all scenarios, there are many that you can anticipate and work to avoid before even getting started.

If you go into a potential acquisition because you’re flattered that someone is interested and wooing you – stop right now. Virtually any business is attractive to those looking to make acquisitions. You’re not special.

But if you really want to sell your agency, then do your homework. Spend a lot of time discussing your shared vision and cultures and ask for their written onboarding plan for a successful cultural and process integration. And get details about processes – sales, client management, hiring, performance management, personal development. If they can’t answer with clear details, then you’re likely walking into a situation that will lack structure. At best, you’ll have a messy transition, and at worst you’ll lose your best talent and your best clients. 

I have seen acquisitions work well when approached from a realistic perspective: Knowing full well that things were going to change and sharing honestly with the team that changes were coming.

When you communicate with the team about the motivations for the acquisition and set new expectations, you give the whole organization a fighting chance to embrace the new culture. You owe it to them to give them your best effort to make their new future – one they didn’t ask for – work out as well as possible.


Photo by David Elfanbaum

Originally published in Employee Benefit Adviser.

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