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2012 Q2

We invite you to read Paul Clarke’s Editorial titled “The Driving Factors of Allstate Agency Values.” A few short excerpts from the article are below:

One of the most vocal topics of discussion PPC LOAN staff have with potential Allstate Agency buyers is: What are the current and expected market conditions for selling insurance in the local area of the agency being purchased. Being competitive or price proxy gives buyers confidence at the time of purchase, as everyone buying an insurance business wants to get off to a good start by having a climate that is conducive to writing large amounts of new business. Being in a market where competition has a significant edge can make potential buyers uneasy about paying top dollar for . . .”

My personal opinion is that the proposed Variable Compensation model for 2013 (with relative ease for agents to get from 9% back to 10% comp) is ideal for maximizing Allstate Agency values, as it provides a healthy mix of fixed income (reward for historical performance / renewals), and contingent or bonus income designed to compensate agents for new business. If the compensation model was modified to compensate agency owners primarily for new business written, and the compensation received by agents for historical performance and client retention was diminished, then we will certainly see a reduction . . .”

Second Quarter 2012

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In the First Quarter 2012 Allstate Agency Value Index report, it was predicted that agency values would stabilize in 2012 and possibly see some level of growth as the year progressed.  Now that the Second Quarter of 2012 is complete, it can be stated with some degree of certainty that agency values have stabilized. 

The simple average multiple of 2.30 times renewal commissions realized in the First Quarter of 2012 increased to 2.32 times in the Second Quarter of the year, but within the various agency size groups (analyzed below), there was very little movement in agency values. 

The groundwork has been laid for agency values to continue to maintain their current values or even increase for the rest of 2012.  Variable compensation in its current form (9% base with relatively easy hurdles to get back to 10%) has been identified as an opportunity with minimal downside risk.  Furthermore, the National Forum in Las Vegas was a successful meeting, and those agents who stopped by the PPC LOAN vendor booth overwhelmingly shared feelings of excitement for the future – especially with regards to the comments and initiatives shared by Matt Winter. 

Agency Analysis by Size Group

$0 to $100,000 in New/Renewal Commission

Despite the overall reduced amount of merger transactions occurring in 2012 relative to 2010 and 2011, the majority of agencies in this size group were part of a merger transaction. The allowance of a merger serves to ensure that agencies of this size group realize only a minimal decrease in value from 1.87 times during the First Quarter of 2012, to 1.84 times during the current quarter.

It will be interesting to watch what happens to the value of these agencies throughout 2012.

$100,000 to $200,000 in New/Renewal Commission

Surprisingly, mergers of these sized agencies continued at a fairly significant pace, as the majority of agencies with between $100,000 and $200,000 in new/renewal commission were part of a merger acquisition during the Second Quarter of 2012. This certainly was a major factor in these agencies seeing a jump in value from 2.20 times in the First Quarter of 2012 to 2.27 times in the Second Quarter.

The future availability to merge agencies of this size will likely continue to be the leading factor in determining the value of these sized agencies. As a standalone business, buyers of these sized agencies will likely see a business that needs to grow for the cash flow to work in their favor, especially if a hefty debt load is required to consummate the purchase.

$200,000 to $300,000 in New/Renewal Commission

Agencies ranging from $200,000 to $300,000 in new/renewal commission have been the most steady of all size groups, consistently maintaining a value multiple of 2.40 to 2.50 times over the past 2 years. This trend continues into the Second Quarter of 2012 with the multiple of renewal commissions for which agencies were sold coming in at 2.40 times.

It seems that at this size or larger the level of cash flow available to cover agency overhead, the new owner’s wage needs and service agency acquisition debt is sufficient to maintain a strong base of interested buyers irrespective of the availability of merger/acquisition opportunities.  

$300,000+ in New/Renewal Commission

Agencies in this size group realized an average multiple of 2.56 times in the Second Quarter of 2012, an increase from 2.54 in the First Quarter and 2.52 times in the Fourth Quarter of 2011. Although subtle, this increase surely shows signs of stabilization if not a move towards growth for those agencies with new/renewal commission income greater than $300,000.

Allstate Agency Price to 12MM Earned Premium Ratio (National Average)
$0 to $100,000
$100,001 to $200,000
$200,001 to $300,000
$300,001 and up
Simple Average
Low
High
2000
N/A
N/A
N/A
N/A
0.202
0.117
0.262
2001
N/A
N/A
N/A
N/A
0.209
0.133
0.311
2002
N/A
N/A
N/A
N/A
0.197
0.119
0.255
2003
N/A
N/A
N/A
N/A
0.199
0.147
0.254
2004
N/A
N/A
N/A
N/A
0.236
0.157
0.393
2005
N/A
N/A
N/A
N/A
0.259
0.175
0.398
2006
N/A
N/A
N/A
N/A
0.298
0.188
0.402
2007
2.37
2.65
2.92
3.01
2.96
1.21
4.56
2007
N/A
N/A
N/A
N/A
0.292
0.121
0.456
2008
2.32
2.41
2.74
3.13
2.71
1.45
4.06
2008
N/A
N/A
N/A
N/A
0.271
0.145
0.406
2009
2.14
2.35
2.50
2.78
2.46
0.82
3.97
2009
N/A
N/A
N/A
N/A
0.247
0.082
0.397
2010
N/A
N/A
N/A
N/A
0.24
0.106
0.353
2010 1st QTR
1.94
2.29
2.52
2.91
2.39
1.06
3.53
2010 2nd QTR
2
2.27
2.47
2.8
2.37
1.17
3.16
2010 3rd QTR
2.22
2.26
2.5
2.74
2.43
1.42
3.31
2010 4th QTR
1.94
2.33
2.49
2.76
2.41
1.95
3.28
2011 4th QTR
N/A
N/A
N/A
N/A
0.231
0.12
0.366
2011 1st QTR
1.78
2.36
2.49
2.73
2.47
1.2
3.57
2011 2nd QTR
1.99
2.37
2.41
2.53
2.33
1.2
3.66
2011 3rd QTR
1.89
2.16
2.45
2.7
2.25
1.5
3.66
2011 4th QTR
2.05
2.23
2.45
2.52
2.34
1.62
3.37
2012 1st QTR
1.87
2.2
2.41
2.54
2.3
1.47
3.07
2012 2nd QTR
1.84
2.27
2.4
2.56
2.3
1.46
3.29
Use the arrows to see agency values over time.
Allstate Agency Value Ratios
Agency Price to New/Renewal Commissions
Agency Price to Total Revenues
2007 1st QTR
2.95
2.37
2007 2nd QTR
2.74
2.39
2007 3rd QTR
2.75
2.35
2007 4th QTR
2.49
2.18
2008 1st QTR
2.95
2.38
2008 2nd QTR
2.74
2.39
2008 3rd QTR
2.75
2.35
2008 4th QTR
2.49
2.18
2009 1st QTR
2.65
2.28
2009 2nd QTR
2.5
2.22
2009 3rd QTR
2.42
2.17
2009 4th QTR
2.37
2.17
2010 1st QTR
2.39
2.08
2010 2nd QTR
2.37
2.09
2010 3rd QTR
2.43
2.13
2010 4th QTR
2.41
2.09
2011 1st QTR
2.47
2.18
2011 2nd QTR
2.33
2.05
2011 3rd QTR
2.25
2
2011 4th QTR
2.3
2.06
2012 1st QTR
2.3
2.02
2012 2nd QTR
2.32
2.05
Use the arrows to see agency values over time.