Industry the December 2016 issue

Change Gamer

Look inside to grow outside.
By Phil Trem Posted on November 28, 2016

Some time passes, and the focus naturally shifts to new opportunities—the next deal.

A colleague calls to congratulate you. You exchange some casual conversation, say thanks and move on.

You attend an industry conference, meet some new folks and talk shop. You trade cards, shake hands. You return to the office, and it’s back to the show.

What’s wrong with this?

Nothing, really. That is, if you want to keep chasing the next deal, competing on price against other buyers, cold-calling agencies and trying to get your foot in the door. (That’s hard work. And in our experience, the success rates aren’t all that great.)

The reality of today’s market is that agencies in a buying position have stiff competition. Sellers rule the market because there are more agencies like yours, those wanting to grow through acquisitions. Daily, sellers are fielding calls from potential buyers who want to get to know them better. What makes one different from another?

The answer is simple, really. Relationships.

The good news is, you have a contacts file packed with warm introductions—the kind of “in” that differentiates your inquiry from another buyer’s cold call. You have the cards from conferences, colleagues you’ve known for years (the ones who called to say “way to go” after the last deal). And, importantly, you have a wealth of new contacts from previous acquisitions that should be mined and nurtured so you can expand your network and, I hope, make yourself a more attractive buyer.

The problem is, so many agencies have their eyes on the next game and forget to huddle up after a successful acquisition and leverage those resources as “ins” for potential future expansion. We know that buyers’ and sellers’ top priority when completing an acquisition is to grow it and maximize the earnout—it’s about increasing value and promoting growth. But when we get trapped in the value silo and neglect the connections that new relationships can introduce, then we are really selling ourselves short.

It’s time to change the buyers game. Very few buyers can compete on price. Remember, your call is one of the many ringing on sellers’ lines. When there is more demand than supply, how do you separate yourself from other agencies at the bidding table? Focus on relationships.

Take a good look inside at the resources you have already acquired, the leaders you have worked with closely to successfully close deals. If the firm you just bought thinks highly of you, that boosts your credibility with the agency’s colleagues. Their respect for you carries on, and those other firms are likely to have a positive impression of your agency because they trust your new associate’s opinion. When the time comes to prospect, calling a “friend of a friend” is much easier, and the inquiry is welcomed with more warmth.

If the firm you just bought thinks highly of you, that boosts your credibility with the agency’s colleagues.

If you consider buying habits in general, it’s not always about price. An agency gains tremendous value when a seller appreciates its culture, trusts its leaders and simply feels good about a deal. And strong relationships can make the acquisition process run more smoothly—and ultimately will position the firm to help maximize value and generate growth. Buyers just need to tap into those relationships and extend their networks from the strong core they already have rather than casting lines into a sea of sellers.

Make a decision to change the game in this sellers market. Be the agency that walks in the back door because of a relationship you already have. Focus on the players in your game right now and figure out how their reputation could help you draft the next champion for your team.

You are surrounded by professionals who are part of your network. There are opportunities within your reach if you focus on strengthening those relationships and building from the inside out.

So next time you get a call from a colleague who says, “Congratulations on that deal!” take the discussion a step further. After closing a deal, consider the relationships that seller has in the industry and how you can get to know those firms. Go even further and encourage the leaders of the firm who recently sold to you to make those introductions. Keep it front of mind. Dig deeper into the contacts you already have, because we believe those are the ultimate differentiators in a marketplace packed with buyers.

Market Update

Deal announcements were down in October, at 22 for the month, compared to 40 announcements in September. Year-to-date announcements through October are also softer than last year, at 348 versus 392 through October 2015.

This month, Acrisure moved into the number-one year-to-date acquirer position with 28 deals announced through October. BroadStreet Partners and AssuredPartners fell to second and third place, with 24 and 23 deals announced, respectively. Confie Seguros has been making up some ground on the leaderboard, with six acquisitions announced in just the last two months (totaling 16 for the year through October, the sixth-highest number of acquisitions among all buyers).

During October, five of the 22 reported deals (23%) were California-based agencies: Acrisure acquired three undisclosed agencies in the state, and Hub International and Leavitt Group each added an agency based in California. Overall, California represents 13% of target agencies year to date, while New York and Texas make up 11% and 8%, respectively. Combined, these three states make up almost one third of all announced deals in 2016 through the end of October.

Phil Trem President of Financial Advisory, MarshBerry Read More

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