KIA&B January/February 2021 | Page 16

MANAGE & LEAD

PANDEMIC , AGENCY GROWTH , AND THE NEW YEAR

WHY SMART AGENTS WILL PROSPER
By David Tralka and Robert Pettinicchi
InsurBanc ’ s David Tralka and Robert Pettinicchi have a positive outlook for independent insurance agencies as we enter 2021 . In the article written for Rough Notes , Tralka and Pettinicchi also share eight optimistic reasons for seeing healthy merger and acquisition activity and the importance of staying up to date with changing times since the pandemic . Read below for more on why smart agents will prosper in the New Year .
Barring an unforeseen event as disruptive as COVID-19 was this past spring and being optimistic that a winter wave of the pandemic is contained , 2021 looks to be a hopeful year for independent insurance agencies . Agencies have weathered the pandemic storm remarkably well thus far and have demonstrated that they can adapt to grow both organically and inorganically in the coming year .
In 2020 , independent agents proved how versatile and resilient their business model is , and the property / casualty market , with a few exceptions , held up during one of the most significant economic dislocations in modern history .
AGENCY SALES VELOCITY , ORGANIC GROWTH , AND PROFITABILITY HAVE ALL BEEN STRONGER THAN
EXPECTED . The pandemic has changed the way we work and do business , and it has laid low far too many parts of our economy . But its impact has been uneven , and overall , it hasn ’ t led to the downturn for the insurance business that many feared .
Let ’ s consider a few areas where the pandemic has had — or more accurately , hasn ’ t had — an effect on agency values and how that may shape activity in 2021 .
MERGERS AND ACQUISITIONS ARE STILL ON A TEAR . There hasn ’ t been a slowdown in agency acquisitions , some expected earlier this year . According to Reagan Consulting , there was a lull in M & A activity in April and May ; acquisitions quickly picked up in June . Many owners are still looking to sell , and there are plenty of buyers out there . It seems buyers have only increased their appetite for agencies and books of business . Late in the year , there are also many hints of tax-motivated selling on some business owners , reminiscent of 2012 .
Reasonable people may differ over whether agency owners should perpetuate internally or sell to an acquirer , but ideally , everyone can agree that when competition remains keen for agencies , it ’ s a good sign for the industry . Here are eight reasons why we ’ re seeing healthy M & A activity :
1 . Interest rates are historically low and will likely stay that way for some time . Inexpensive capital fuels borrowing and agency acquisitions . Quite simply , low rates drive transaction activity and fuel higher value multiples . It ’ s important to understand that this downturn is quite different from the one in 2008 when credit markets dried up . Getting capital today is not a problem .
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