2009 Q3

Third Quarter 2009

With the release of the Third Quarter 2009 Allstate Agency Value Index, the value for which Allstate Agencies were sold continued to reflect a downward trend but at a significantly reduced pace. However, there is good cause to believe that the Market Value of an Allstate Agency actually reached a floor in the third quarter (discussed below).

Through the Allstate Agency Value Index, PPC LOAN strives to give Allstate agents a glimpse at the Market Value of their agencies. Market Value is defined as “what a willing buyer will pay a willing seller with neither party having compulsion to buy or sell.”

During the Third Quarter of 2009, the volume of traditional agency sales (voluntary agency sales made by agency owners planning to retire, relocate, etc.) remained steady; however, the number of agency sales occurring where the selling agent had some level of compulsion to sell their agency increased. Compulsion in itself serves as a significant driving factor in causing Market Value to shift either upward or downward. This compulsion came in the form of either a termination or the expectation that a termination was imminent, both of which had a considerable effect on the value of agencies sold in the quarter.

This quarter serves as an excellent opportunity to bring up the fact that inherent in the value of each individual Allstate Agency is the agent’s relationship with Allstate Insurance, a publicly traded company, accountable to its agency owners, insured clients and shareholders. Therefore, the value of an Allstate Agency will always be driven in part by Allstate’s corporate position, actions and ability to approve or disapprove potential acquisition candidates.

In other words, much like government policy can temporarily create a false equilibrium price by artificially moving the intersection of supply and demand, Allstate’s often understandable and reasonable corporate policy is now and will continue to influence individual agency value in the future.

The good news is that agents wanting to sell their agencies, who are not being compelled or otherwise rushed to do so by an external factor, should be able to realize a value for their agencies above the average noted for the Third Quarter of 2009, given sufficient time to encounter the right buyer. The bad news for these same sellers is that the inventory of agencies being sold by agents under an external compulsion to sell will mean that it will, in all likelihood, take longer to find the right buyer.

Historical Allstate Agency Value

Viewed over the long term, the present value for which Allstate Agencies are being sold remains strong relative to both Agency Renewal Commissions and Total Revenues. This continues to be a testament to the extremely strong historic earnings of Allstate Agencies and the relatively stable nature of their revenues. 

Agency Size Analysis – Agency Price to Renewal Commission

An additionally significant and interesting aspect of the Allstate Agency Value Index that can be observed in the long-term historical agency sales data is the impact an Allstate Agency’s size has on its value relative to Renewal Commissions.

Based on Allstate Agency sales data accumulated over the last three-plus years, it’s clear that size matters to buyers as those agencies with Renewal Commissions of $300,001 or greater sell for the largest multiple of commissions. However, the price paid for agencies under $100,000 in Renewal Commissions is on the rise due in large part to the recent spike in merger activity.

Allstate Insurance has unveiled their Ideal Agency Model and through their recently released Customer Focused Acquisition Program are now allowing Premier Service Agents to merge small agencies and grow through acquisition as opposed to organic means. Owners of small agencies have two new positive development options:

  1. Purchase and merge with another Allstate Agency, instantly jumpstarting growth and allowing the purchasing agent to realize significant economies of scale associated with eliminating duplicate expenses that would occur in a satellite acquisition.
  2. Sell to other agency owners who appropriately become willing to pay a premium to purchase and merge another Allstate Agency (agency size becomes irrelevant to the purchaser when a merger is being executed).