Agency mergers & acquisitions

Agency mergers & acquisitions

Di Stefano, Paul J


Preparing employees for transition

The agency principals have finally made the decision to sell to a national organization or financial institution. Word is leaking out and employees are nervous, especially the agency’s producers. “How should I handle this?” is the question we hear most often from clients in this situation. Feeling a bit overwhelmed is normal at this stage, but keeping an eye on the end game is most important, even though the end may actually be the beginning.

Honesty with agency employees is very important. It is the key to dealing with their insecurity during this process and will prevent the loss of essential agency employees. Keep in mind that the most important asset being

acquired, aside from client expirations, is the agency’s staff. Once your employees surmise that you are selling, rumors may spread rapidly. The best way to prevent rumors is to be open, at the appropriate time, with your key employees and assure them of continuity. One must keep in mind that, in many cases, an employee’s vision of a merger is a 30-second news sound bite like “XYZ acquires AAA Company and eliminates hundreds of jobs.”

Harbor Capital strongly recommends that you explain that the agency is exploring strategic alternatives to remaining an independent agency in light of the continuing industry consolidation and market problems.

In spite of the fact that during acquisition negotiations, you may have been assured that everything within your agency will remain pretty much the same, you would be well served to cover the following integration issues with the buyer prior to merger to assure a much easier transition:

* Discuss the viability of an agency name change and related timing.

* Compare buyer’s producer non-compete agreements with in-force agreements.

* Define selling principal’s primary functions and responsibilities after the merger.

* Specify future compensation and incentive packages for agency principals.

* Compare acquirer’s benefit plan with existing agency plan.

* Define career opportunities for key non-equity owners.

* Enumerate all anticipated organizational changes.

* Discuss any changes in producer compensation plans and transition periods.

* Discuss lease renewal options and/or lease terms for buildings owned by selling principals not included in sale.

A merger or acquisition by a national organization or financial institution will provide principals and key

employees with the following opportunities and challenges:

Agency Principals

* Parent company reporting requirements

* Continued responsibility for the agency’s strategic plan

* New interaction with industry peers

* Implementation of decisions without the financial risk Industry recognition as an officer of a well-known organization

* Adherence to the human resource and professional standard policies.

* Access to parent company professional resources

* Ability to attract more qualified producers

* Economic participation in the future of the industry


* Greater availability of products, programs and markets

* More comprehensive sales training

* Enhanced ability to close sales and enhance compensation

* Recognized national platform

* Credibility needed to approach larger accounts

* Enhanced career path

Financial Executive

* Submission of detailed annual budget

* Preparation of multi-year strategic plans

* Reconciliation of monthly financial statements

* Creation of detailed management reports

* Adherence to market security committee

Department Managers

* Adherence to strict professional standards

* Standards for consistent and proper file construction

*Enhanced career path

By Paul J. Di Stefano, CPA, CPCU, and Thomas Pepe

Copyright Rough Notes Co., Inc. Oct 2002

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