What selling a brokerage and ‘The Bachelor’ have in common

Dating takes time, and hours of preparation – even The Bachelor takes a full season for the prospective bride-to-be to sort  through all the contestants. And the process of selling your brokerage is no different, according to a brokerage M&A consultant.

Anyone who’s sold a brokerage will tell you sorting through the initial bids is a time-consuming and difficult process, said Herb Cline, president of CF2K Strategic Consultants during a session at the recent Insurance Brokers Association of Ontario convention.

So is the preparation leading up to soliciting those bids, which includes getting non-disclosure agreements (NDAs) signed by both interested parties and certain people within the seller’s offices, “Almost always, it’s going to be your finance person first,” he said. But owners should also think about who else needs confidentiality agreements to ensure team members don’t worry about a sale leading to layoffs.

What comes next – meeting a slew of potential buyers – oddly resembles speed dating, said Cline.

Except that instead of a dating profile, sellers are handing out a confidential information memorandum (CIM) containing details including the company’s backstory, staff, financial status and what products it sells. Those meetings with potential buyers can last up to two hours.

“It’s where you kind of put your CIM in their hands, they put their marketing document in your hands, and then you get to research each other a little bit,” he said. “They talk about their culture. They talk about how they promote and train new producers. They talk about how they treat their clients.”

Plus, potential buyers talk about their revenues and past acquisitions they’ve completed, their integration strategies and how they determine their share price. For brokerage sellers that means coming prepared with questions they’ll want answered.

Cline urged sellers to think seriously about their reasons for pursuing a potential buyer.

“Maybe you’re one of those brokers that has been acquiring for the last 20 years,” he said. “And in that acquisition, you still have residual debt, so…you’re looking for a partner that will help eliminate that debt.”

Others pursue a sale because they know their brokerages require large-scale technology upgrades and they don’t have the bandwidth for that task. “So, you’re looking for a partner that already has those capabilities, and that can go on that journey with you,” said Cline.

It’s a big time commitment. In all, Cline said it can take three days to get through six potential buyers.

“That is not only brain overload, it’s also an emotional overload,” he added. “This is an exhausting process, but it’s one that you need to be prepared for. You sit there and try to figure out ‘Is this a good fit? Are these people going to carry on my community legacy? Are they going to care for my staff?’”

What comes next are letters of intent (LOIs) from prospective buyers. And then, after about a month, you will move to due diligence with parties with whom you think there’s a fit. This involves showing the buyer all their financials, producer contracts and more. Cline advised firms to clean up any litigation issues prior to this process.

“All your client information is now downloaded because this has entered into an exclusive due diligence with just one organization,” Cline said. “And then you start preparing all of the documents, dotting all the I’s crossing all the T’s.”

If the offer moves to a signing, sellers shouldn’t assume they’re done. The next stage is integration, which can last between four and six months, Cline said.

“There’s all the internal and external communications that you want to be accurate, that you want to be reflective of who you are,” he added.

Feature photo courtesy of iStock.com/sabelskaya