All About Agency Due Diligence

Agency due diligence means that you’ve taken the necessary steps to understand what you’re acquiring in an agency acquisition. Any time you purchase an existing business, you’re not only acquiring  the good:

  • Goodwill
  • Lines of Business
  • Revenues
  • Talent
  • Technology

You’re also acquiring liabilities and obligations like:

  • Debts/Overhead
  • Retirement packages
  • Outdated systems
  • Employee compensation
  • Any liens, fines or ongoing litigations

All of this and more goes into the agency valuation both on the open market and specifically to you. Agency due diligence impacts your ability to get financing, attract investors and grow as a company once the deal is done.

Having all of the information organized and available helps the sale go more smoothly.

Every agency and acquisition is different. It’s not possible to provide exhaustive lists of everything you need to do due diligence. But here’s what to consider to ensure you discovered what you need to know.

What Due Diligence Is Necessary on the Business Side?

  • Acquire data on existing subscribers/clients, lines of business, number of years with the company, commission volume and annual fees
  • Gather and consider and strategic partnerships, contracts and subscriber services specifically related to the subscribers.
  • Get meeting minutes for board meetings and committees available over past 10 years. Review these. You may be surprised how revealing they are. They’ll prepare you for a full evaluation of the agency.
  • Get the stock certificate book and stock register
  • Obtain inventory of any real estate ownership, leases, etc.

What Due Diligence Is Necessary on the Financial Side?

  • Provide and acquire all financial statements for past 3 years and year so far
  • Curate capital expenditure plans (budget, cash flow, liquidity, revenues streams, general ledger etc.)
  • Know the working capital requirements to support this business. Failing to do so could lead to a huge mistake.
  • Review and evaluate whether the fiduciary and premium accounts are balanced with assets equal to or exceeding liability
  • Review accounts receivable and collectability
  • Get a summary of all insurance contracts
  • Acquire copies of federal and state tax returns or the past 5 years and payroll over the past 3

What Are My Legal Due Diligence Obligations?

  • Acquire copies of bylaws, letters of incorporation, etc.
  • Establish current shareholders along with voting agreement, officers, directors, etc.
  • Get a list of all stockholders
  • Establish good standing in the current markets
  • Review any patents, copyrights or intellectual licenses
  • Evaluate any pending litigations, arbitrations or judgments.

What Must I Review Related to Technology Infrastructure?

It’s essential that you understand the IT systems within the company. Are they outdated and must be replaced? Can they be integrated with your own? What are the costs involved to do so?

How does this impact the value of the agency?

What Must I Consider Regarding the Insurance Products Themselves?

How will the products and lines of business complement your own? Are any in direct competition? How will you address this?

Are you confident that you either have the understanding and in-house skill to manage these different products? Or does the company being acquired have reliable knowledge and skill of value to you?

How are the products performing? What are the loss ratios? Are all of the products viable? Or will you be consolidating,

What Responsibilities Do I Have in Human Resources & Employee Benefits?

As a business leader, you know that some people within an organization are not easily replaced. The quality and morale of the people within the agency matters. You also know that there may be dead weight that needs to be let go.

Get a copy of the organizational chart along with:

  • How long they’ve been with the company
  • Expertise
  • Salary
  • Job Title
  • Status
  • Independent contracts
  • Etc

Evaluate the human resources, compensation and benefits packages that you’re inheriting with the agency.

What Do I Need to Know About Executive Compensation & Performance

As you know, the executive compensation structure can be complicated. Make sure you understand it along with that executive’s contribution to the organization. You or your top execs will be working closely with these individuals.

Know what you are working with.

When in Doubt Get Expert Assistance with Agency Due Diligence

Don’t make a multi-million dollar mistake. Do your agency due diligence. Don’t try to navigate the complexities of due diligence alone. I would be happy to learn more about your own agency and/or the one you plan to acquire. Knowledge is power. I can help you acquire and analyze what you need to know.

Together we can make the right decisions. Call to schedule a consultation.