How small brokerages find the funds to grow through M&A

Given the increasing expenses required to grow a business, how can a smaller brokerage secure the funding to expand via a merger or acquisition?

“There are many options in the marketplace,” said Adam Duliban, principal broker with Duliban Insurance Brokers. Duliban’s independent brokerage has acquired six brokerages in total since the inception of Duliban Insurance Brokers in 1976.

“It would be prudent to review each one to determine the best fit within a long-range view of your business plan,” Duliban said. “We’ve analyzed all of them.”

Among the options are:

• a vendor take-back mortgage, where payments are remitted over a period of time;
• conventional lending from a bank;
• independent arrangements with insurance companies; or
• formal relationships with insurance companies with equity stake.

M&A in the brokerage space may be on the rise due to increased “conventional operational expenses and rising customer expectations,” Duliban said, adding that M&A is a “great way” for a brokerage to combine efficiencies and reduce expenses.

“It [the M&A process] really puts focus on efficiencies, scale and growing your brokerage any way possible,” he said. “We’re excited about the future of the independent broker channel. There are a lot of us in our space that feel the same way, [and] opportunity for acquisition is part of that.”

Duliban Insurance Brokers is a third-generation family business of about 50 employees. It recently completed its second acquisition in 24 months, announcing the purchase of Fisher Stevenson Boehm Insurance — a brokerage offering auto, home, business, farm and travel insurance for customers in Ontario’s West Niagara region.

Related: Will a “wave of succession” spur M&A for Canadian brokerages?

Duliban said increasing costs can make it increasingly difficult to operate a smaller brokerage that isn’t focused on growth. These costs are based in part on increasing consumer demand, which is in turn causing brokerages to offer more and better services over an expanded timeframe outside regular work hours. This includes offering policy change and delivery online and in real-time.

Succession planning is another factor playing into increased brokerage M&A, he said. Discussions around succession planning and the profitability of brokerages can be a “very hard conversation” to have amongst family and business partners, but it has to be on the table, Duliban said.

“Unless you are clear and open, it makes it a very difficult conversation when it has to happen unless there is a mutual understanding,” he said, adding that his brokerage underwent a succession in 2014 when his father decided to retire.

Duliban recommends that brokers start with a business plan — for example, projections for one year, two years, five years, ten years and long-term. “Where do you see your brokerage heading with respect to market share, technology and growth?” Duliban asked. “There are a lot of different options within the marketplace if you are progressive and willing to stick to the plan.”