Succession planning: providing support to smooth the exit transition

There comes a time for every broker when retirement beckons. But before beingput out to pasture, there is a huge decision to be made – who will pick up the reins and take on the business, its people and clients.

If the business is a solid performer, then the owner’s retirement should be extremely comfortable. There are a number of buyers ranging from those with relatively modest aspirations to cash-rich consolidators determined to expand their empires.

But, for many brokers, it is not just about cashing in and moving on, as selling can be a time of mixed emotions.

The business may have taken up much of a working life, there can be a strong sense of responsibility towards staff as well as concern about what service will be provided to clients. Even if the cash on the table is tempting, there may be doubts about a potential buyer’s intentions.

M&A addiction

For some brokers, the heady world of mergers and acquisitions is an addiction, as they relentlessly seek the next deal to feed their habit. But for the majority of owners, the time to sell will only come around once and making the right decision is crucially important.

For those with limited knowledge of selling a business, it may also seem that the process is weighted towards buyers, a number of whom have secured large amounts of funding whether from private equity, banks or other investors.

Anecdotally, even brokers who are not for sale say they receive regular approaches from potential buyers. Where there is a decision to sell, they can expect numerous suitors, resulting in difficult choices, such as whether a merger with a local rival would work or if a large consolidator would mean more opportunities for employees or if the business will simply become a cog in a vast machine.

This is a time when advice may be needed, but while there are specialist consultancies, these may not be appropriate for the smaller firm. And while a broker could have a good relationship with their accountant, for example, they may not have the inside knowledge on potential acquirers or how other similar deals have panned out.

Advisers will also want to take a cut for their services, and some brokers will question if this is a price worth paying.

Succession consultancy

One insurer that has chosen to support brokers in this area by launching a dedicated consultancy service is Aviva. Aviva Succession was set up in January 2021, and around 400 brokers have taken advantage of it so far. 

The insurer’s view is: “The brokers that find the greatest success with their succession plans will be the ones who have taken the time to adapt, prepare and fully explore their options.  But it’s also never too late to seek advice to ensure you achieve the outcome you desire.”

Ryan Birbeck, Aviva’s distribution director – regional brokers, says: “We have a team who help brokers decide on their succession strategy. They are all experts in the broking market at Aviva, but I have no idea who they are talking to – it is a totally confidential service. 

We do not charge any fees and we provide access to other external experts who can advise on matters such as tax liability, compliance and due diligence.

Ryan Birbeck

“We do not charge any fees, and provide access to other external experts who can advise on matters such as tax liability, compliance and due diligence.”

Brokers receive guidance on vital areas such as valuations, and the team can also advise on firms that might make suitable purchasers and how brokers should vet buyers, as well as those who have been through the M&A process

Birbeck continues: “It’s a consultative approach and a sale is not always the end result, even if it is a natural assumption. 

“Some firms have decided an management buyout is the right route, and we may be able to advise on how to raise finance, while another option could be an employee ownership trust or a merger with another independent, with a sale planned for a later date.”

He adds that training with Aviva’s Future Leader Programme could also be an option for succession planning purposes, and help to ensure key members of staff are ready to step into more senior roles. However, there will be other brokers that may already have their preferred buyer in mind – and the success of the consolidators shows they are coming up with compelling propositions.

Some large consolidators are paying excessive amounts – it is a real sellers’ market at present. 

John Sims

John Sims, chairman and CEO of Vizion Insurance Brokers, reveals that the current multiples being achieved appear extreme and unsustainable, and says: “Some of the large consolidators are paying excessive amounts – it is a real sellers’ market at present. 

“It’s common for brokers to get buyers cold calling them to see if they are interested in selling. If the broker thinks they need it, then take advice and don’t take the first offer.”

Experience on both sides

Meanwhile, Phil Barton, CEO  at Partners&, has seen plenty of acquisition action, but explains that he also knows what being sold feels like. In 2015, he was a director with Jelf, which was purchased by Marsh McLennan.

Barton comments: “It isn’t easy for employees, and I have a lot of empathy with brokers that are selling. They care passionately about their people and, of course, who they sell to is an incredibly important decision.”

He says Partners& will often buy businesses that are not officially for sale because they build relationships, are able to show that staff and clients will benefit, and that the fit is right.

Barton says there is no substitute for meeting owners for discussions about the Partners& vision, and he questions whether brokers need independent agents. 

“In my experience, an agent can simply mean a deal becomes stuck on price – this should not be put on an altar above all else. What matters more is the culture – if this works then the financials tend to look after themselves.”

What matters more is the culture – if this works then the financials tend to look after themselves.

Phil Barton

Barton is fresh from agreeing the purchase of broker, RTIB, an art specialist based in Weybridge, Surrey. “They are a super firm and we found there was cultural alignment,” he says.

Meanwhile, achieving the best possible price is a key requisite for many brokers, and it may be that some external guidance will pay dividends.

Idex Consulting is a recruitment and business consultancy that offers its Broker Growth Programme. This involves experts working with a broker – ideally several years before it is sold – to maximise its value. 

Managing director David Carr says there have been many successes, with in-depth advice given on areas like talent, with suitable recruits drafted in to bolster the business. There is also analysis of data, advice on marketing and guidance on whether launching a new – or improving an existing – scheme, for example, would be beneficial.

“Taking time to prepare the business for sale means they should be able to achieve a far higher multiple. We now have strong interest in the programme from brokers that realise the advantages in preparing a business. 

“One of our experts, Colin McKenna, has also spent 20 years working for Aviva on broker development, so he is ideally placed to help firms with their exit strategies.”

Timing is also an important issue. Phil Bayles, chief commercial officer at the Ardonagh Group, is closely involved with M&A work, and says while the sector remains active, there has been a slight “cooling off” in terms of prices being achieved.

Bayles adds that brokers also need to sell at the optimum time: “Brokers may want to consider that if there is a change of government, then capital gains tax could be impacted, making it less profitable for them, and this may be an influencing factor.”

Employee security

Bayles agrees selling is often an emotional process, and gaining trust is essential. 

“I take time to get to know people as individuals. Often, the biggest factor for the owner will be knowing that staff will be in good hands if there is a sale. They want to know that their people will feel welcome from day one.”

Often, the biggest factor for the owner will be knowing that staff will be in good hands if there is a sale. They want to know that their people will feel welcome from day one.

Phil Bayles

He also questions whether using an independent adviser is always necessary, and says: “Of course a broker will want to use an accountant and lawyer, understanding due diligence and the tax position is essential. But using an adviser could mean the business is touted to the whole market, and the broker loses some of the control.”

Bayles adds most brokers will be able to decide which buyer is right for their business based on their experience.

“They know what matters – and will often have prepared their business for sale. These are talented entrepreneurs who understand the market, and they will also talk to peers about acquisitions and what has worked. I would only say that if a broker does not feel confident, then of course, they should use an adviser.”

That will remain an option for brokers, but one fact remains – this is a golden time to be selling, both in terms of the prospects for achieving a high price and of having a number of buyers to choose from.