Opinion: Preparing for sale or acquisition – what brokers need to know to seal the deal

The mergers and acquisitions market in the insurance sector has always been buoyant, and despite a documented drop in deals in 2022, there is still plenty of scope for firms looking to secure buyers.

The start of a new calendar year often sees a flurry of activity as firms enquire about their options, explains Stuart Randall, founder of Brokerring: “There are lots of reasons why a new year often heralds M&A enquiries, but for the most part, it’s to do with the nearing of the tax year end, and January coming off the back of a period of rest over Christmas, when lots of people take stock and get a chance to think deeply about their long-term plans.

“Whatever a firm’s reasons, the process remains broadly the same as they progress down their merger or acquisition journey.”

As a senior corporate partner, I handle numerous sales of smaller firms to larger counterparts each year. There are almost always similarities in the transactions which slow down the process; such as missing paperwork, delays in responding to due diligence enquiries and negotiations over deferred deals. 

If you have got all your contracts, financials, insurance and other corporate documents ready and to hand, this will alleviate the time and effort required during the transaction when you are also trying to run your business.

Considering the fact that most firms are keen to close deals as quickly as possible, here are some top tips that will help to make the sales and acquisition process as smooth as it can be.

Get your house in order in advance of agreements

This is the single most impactful tip I can offer for sellers – take the time to get everything ready before you embark on the legal process of the sale or acquisition.  This means ensuring that you have the copies of all your paperwork – including contracts, management accounts, financial forecasting and so on – and then putting these in one place, so you can lay your hands on them easily when you need to.

Missing documentation will need to be tracked down before a sale can complete, and this can cause delays later down the line, which is a stressful experience for everyone involved.

If you have got all your contracts, financials, insurance and any other corporate documents ready and to hand, this will help to alleviate the time and effort that is required during the transaction process when you are also trying to run your business, and it is likely to mean that the transaction will be quicker and smoother.

Look at your contract terms and conditions

Many insurance firms will use terms of business agreement terms, but almost always have a minority of clients on non-standard terms and conditions. These separate T&Cs should be located, and you must ensure that there is clarity over what the client’s terms are.

It’s not uncommon for earn-outs or deferred considerations to be more than three of four years; longer than typical acquisitions in other sectors. 

Because most insurance acquisitions are typically concerned with the client book, rather than physical assets, having a crystal clear view on each client’s terms is vital.

Be available

Getting everything ready in advance will certainly reduce the volume of due-diligence enquiries you’re likely to receive from your law firm, but it’s unlikely to completely eliminate them. 

It’s almost certain that you’ll need to be on hand to answer queries, and the faster you can answer these, the quicker the deal will progress.

Think long-term and know your firm’s history

You must think long-term both in terms of your firm’s history and its future. Think back further than simply your last financial year when it comes to considering the value of your business – client longevity and the history of your firm all play a part. 

Lowering the risk

However, insurance brokerages very rarely enter into liquidation, thus making a longer-term buyout a lower risk than it might initially appear to be.

The good news is that insurance broker merger and acquisition activity is typically without major bumps in the road and, by taking the time at the outset to ensure as much preparation work as possible is completed in advance, firms can make the process as painless as possible.