The pace of mergers and acquisitions among insurance agencies has reached a fevered pitch. While the motivation behind any single transaction is personal to the organizations involved, we see some consistent outcomes on the back side and, most of the time, it ain’t all that pretty.

Why are successful mergers and acquisitions so elusive?

It starts way before the merger/acquisition. Independent agencies value one thing above all else: their independence. And, it’s not simply the agency itself, the producers within these agencies pride themselves on their own “independence”. While this is an attitude that is healthy in many ways, it is also what keeps most agencies and producers from reaching their full potential. It gets in their way of accepting positive direction, allowing themselves to be pushed to new limits, or finding the synergy that only results from being part of a cohesive team.

A big problem is getting bigger

Why all the mergers and acquisitions now?

If you ask agencies why they merged or sold, you would come up with a seemingly endless list of reasons. However, knowing how much agencies value their independence, there is almost always some underlying problem; something is broken and the owners are unsure of how to fix it.

It’s scary times for independent agencies and they are scrambling to figure out how to remain relevant.

  • Many think that relevance is simply the result of being bigger. I disagree.
  • They then rationalize their decision to sell, buying into the idea that their day-to-day life will remain the same. That just can’t be.

It seems to be a reasonable argument

To the first point. I know these larger brokerages will argue that “you have to have volume” to be relevant. And, there is some truth to that, but only so far as “relevance” is tied to an insurance product. As carriers shift their distribution channels, that relevance is more tenuous than ever before.

True relevance is defined by an agency’s ability to help their clients navigate the increasing complexities challenging today’s business owners. Simply having “access to combined resources, technical experience and best practices of a larger firm” (per a recent press release rationalizing a rather large M&A event) isn’t enough. That access is only meaningful if it is plugged into an intentional environment of educational marketing, buyer-focused sales systems, and an impactful client experience.

Mergers and acquisitions for the primary purpose of acquiring or aggregating volume is a colossally bad idea.

Lack of volume is merely a symptom of the real problem

Volume isn’t the real challenge for most agencies. The real challenges are leadership’s inability to successfully manage the agency by fostering a healthy culture, evolving the value proposition, and instilling the discipline necessary to achieve growth in the first place; things rarely considered during a merger or acquisition (as crazy as that sounds).

I don’t know if they really believe it or not, but agency owners will buy in to the buyer’s promise and explain their decision to their team as, “We’re going to gain access to untold new resources, but they are going to leave us alone to run and manage our agency the way it’s always been.”


Selling/merging only fixes the real underlying problems if the new organization is run as a single, focused, and controlled machine. If things had been truly going well – consistent organic growth, healthy profit margins, etc. – the agency likely would have NEVER sold. The acquiring agency knows this; it’s why they make the promise in the first place.

The buyer is the salesman

The acquiring agencies are selling the selling agency on why they should sell. I’m not saying they are intentionally being deceitful, but they promise a version of a hands-off, post-sale reality that just can’t be. Or, at least it shouldn’t be. We have observed the back side of acquisitions/mergers made on these promises, and it is never as ideal as was promised.

Don’t get me wrong, there are some of these “aggregators” who largely leave the acquired agency alone. However, because of the dysfunction that existed in the selling agencies to begin with, these become the most dysfunctional of all organizations. When you loosely connect a bunch of broken businesses together, it only makes bad situations worse.

One of the most recent merger/acquisition press releases stated that the previously independent agencies will retain “independent decision-making authority”. Why leave the decision-making authority in the hands of leaders who were, in many cases, struggling to achieve any meaningful level of growth, much less profitable growth?

How can this “bigger and better” agency ever achieve its true potential without the important decisions being made at the top and enforcing consistency throughout the organization?

But, where is the line?

If the combined agency is going to be successful, egos must be set aside and the acquiring agency must be willing, expected, and allowed to take control.

At one level, I agree that individual offices need to have a level of continued autonomy. However, there has to be a limit to that autonomy. Dare I say, there are certain things that must be mandated within the new agency. If not, almost nobody, and certainly the larger organization, will ever come close to their potential.

Every organization needs to have consistent, mandated expectations in certain areas: Goal setting, planning, CRM, value proposition, processes, etc. In reality, by taking the need to deal with these items away from individual offices and producers, they free up those offices and producers to tap into the entrepreneurial drive that benefits everyone. They free them up to get back to what they do REALLY well: Sell.

It’s not the aggregated premium

Merging/selling/acquiring can absolutely be the right decision. But it’s a decision that must be made after making the right considerations with the right priority.

Unless an agency is purely looking for an exit strategy, due diligence needs to be focused on a Culture and a unified Vision that the merger/acquisition can accomplish. However, all too often, due diligence is focused on aggregated premium and a larger tool box. The glitz of the latter fades quickly if there is a fundamental misalignment of Culture and Vision.

But, add significant volume on to an organization with a cohesive Culture and unified Vision and THEN you have something special. Aggregated premium is meaningful, but only when it is the cherry on top of the sundae.

A bonus bitch

Again, I do understand that selling can be the right choice, but there has to be a healthier way to execute.

Why do so many of the acquiring agencies create buyout provisions detrimental to their long-term success and viability? It is pretty typical to see a trigger event for the selling agency two/three years into the deal. The event is usually a payout based on some multiple of EBITDA. To maximize that payout, the acquired agency/office is incented to strip out every “discretionary” dollar of investment into the agency/office.

And, who can blame them when they start cutting and slashing? The more expenses they cut, the bigger their payday. Of course the fat should be cut, but I see chainsaws being used when a scalpel would be more appropriate.

I blame the acquiring agency. Why do they so heavily incent decisions that are rewarded with short-term gains for the seller, but does so at the long-term detriment of the parent agency?

How about if the acquiring agency sat down with their new office and made the right decisions for the right reasons for the long-term benefit of the overall organization? What if they discussed the detailed Vision of where the larger organization needs to be at the end of that two/three years and how the individual office needs to be situated using factors such as growth rate, staffing, processes, etc., as a contributor towards that Vision? What if the buyout kickers were based on the metrics of those factors?

Now the office is incented to clean house, but in a way that positions it for long-term contribution to the larger organization.

Kind of obvious isn’t it? Or am I missing something?


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