Perpetuating Agencies

Library of Articles

Perpetuating Agencies

We often hear of agencies ‘merging’ as a form of perpetuation planning for an owner.  When we analyze most of these ‘mergers’, we find that they were acquisitions in disguise to protect the ego of the selling owner or to keep the clients from believing that they had been “sold.”

However, a merger for perpetuation can be an excellent tool that accomplishes the goals of both the seller and buyer IF IT’S DONE PROPERLY.

The difference between a merger for perpetuation and an acquisition disguised as a merger is more than superficial.  The difference involves a REAL merger in which both owners remain with the combined agency with one selling down and/or retiring only after the combined agency has stabilized and realizes the benefits and economies of scale of the business combination.

Some of these mergers occur when an owner realizes that (s) he needs to get the value from the asset that has been built but doesn’t necessarily want or need to retire.  As I’ve often said,


If you can find another agent young enough to be your successor with whom you can merge, the two of you can use your experience and his exuberance to create a bigger, more efficient, more profitable entity.  Only when those goals are reached do you sell down your stock and either retire or not.  The merged entity will likely become more valuable as an entity than the combined values of the individual agencies, giving you more for your asset than would otherwise have occurred.  If you wish, or need to retire, the transition period would make your staff and clients feel comfortable with the continuity of the organization.  

Two rules exist, without which the merged organization will be uncomfortable and very temporary for experience agents who have owned their businesses for many years.  First, both owners must stay with the combined agency for a period of time until certain goals are achieved.  These goals should be at least revenue or value growth and stability of the combined organization in terms of employee stability and client stability.  This means that the original owners must stay long enough to experience and lessen any real or imagined emotional stress caused to employees from the merger.

It’s also ultimately important for the older owner to be with the younger owner for a few renewal cycles of the agency’s major accounts to assure them of the continuity and competence of the agency ownership, regardless of whether the older or younger owner is their contact point.

The second rule is that each owner MUST have different roles in the agency.



Remember, the ‘old dog’ has probably run his own business for several decades and is now ready to slow down or cash in his asset value.  However, the younger owner is also feeling in control of his business.  The older owner will assume that his word will continue to be law while the younger owners’ needs to feel “in charge” regardless of how much he respects the older owner.

The best way to eliminate most sources of friction in a merger for perpetuation is for each owner to assume control over different aspects of the agency with full authority and responsibility for those roles, staff, or departments.  This should NEVER be a situation where each owner continues to manage exactly who and what he had previously.  The reason for this is that the merger will lose all economies of scale and profit potential.  We have seen situations of a merger for perpetuation where each agent manages exactly what he previously managed for ten years after the merger.  This turns out to be a cluster group, merged only for markets, which isn’t a bad thing – but not what a 65 year old owner was expecting when he conducted the merger in the first place.  Now, at 75, he still feels alone and doing everything he did when he was 50.

If one owner becomes “Mr. Inside” and the other “Mr. Outside” (the most prevalent break-out of responsibilities we’ve seen) they don’t get in each other’s way, they can support each other for mutual benefit and they show a combined front to both clients and staff.  The staff members sometimes try to break up a merger when they enjoyed their previous situation more than the changed entity.  But, please remember, if YOU own the agency you should be in control of your business and your future – not your employees.

Please call us (800-779-2430) if you wish help or more information about Merging for Perpetuation.  We can guide you through the process and make it painless to cash out your most valuable asset while you’re still young enough to enjoy it.  We can show you how to make your agency more valuable before you sell or retire.  And we can show you how to finally get to do the things in the agency that you enjoy most instead of all those responsibilities that you hate but have to endure as the sole owner of your business

The author of this article is currently unknown