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2017 Q4

Fourth Quarter 2017 Allstate Agency Value Index

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Value Gap Widens between Large and Small Agencies

The pursuit of organic growth has been validated this quarter as the value gap between large and small-sized agencies has widened significantly. The chart below shows agencies with over $3 million in earned premium trading at a multiple of 2.90, while smaller agencies (those with between $1 million and $2 million in earned premium) realized an average sales multiple of just 2.20 times.

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

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 4th QTR

N/A

0.229

0.127

0.336

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

2012 3rd QTR
1.96
2.22
2.33
2.59

2.28

1.27
3.24

2012 4th QTR
2.14
2.21
2.43
2.55

2.39

1.53
3.36

2013 4th QTR

N/A

0.247

0.107

0.349

2013 1st QTR
2.1
2.15
2.38
2.51

2.3

1.28
2.95

2013 2nd QTR
N/A
1.99
2.3
2.57

2.34

1.88
3.07

2013 3rd QTR
2.19
2.18
2.39
2.68

2.5

1.59
3.07

2013 4th QTR
N/A
2.2
2.48
2.74

2.5

1.07
3.49

2014 4th QTR

N/A

0.264

0.107

0.352

2014 1st QTR
1.74
2.32
2.35
2.7

2.38

1.07
3.16

2014 2nd QTR
N/A
2.43
2.47
2.76

2.62

1.73
3.52

2014 3rd QTR
N/A
2.52
2.54
2.77

2.66

1.97
3.45

2014 4th QTR
N/A
2.43
2.54
2.79

2.69

1.94
3.52

2015 4th QTR

N/A

0.251

0.126

0.431

2015 1st QTR
N/A
1.99
2.45
2.66

2.5

1.69
3.35

2015 2nd QTR
1.48
2.4
2.5
2.85

2.54

1.34
4.31

2015 3rd QTR
1.26
2.04
2.71
3.05

2.55

1.26
3.66

2015 4th QTR
1.86
2.22
2.39
2.91

2.43

1.68
3.31

2016 4th QTR

N/A

0.258

0.081

0.378

2016 1st QTR
1.53
2.09
2.47
2.61

2.35

0.81
3.01

2016 2nd QTR
N/A
2.1
2.51
2.79

2.59

1.61
3.78

2016 3rd QTR
2.55
2.15
2.54
2.74

2.58

1.8
3.67

2016 4th QTR
1.8
2.34
2.42
2.76

2.57

1.65
3.24

2017 1st QTR
N/A
2.21
2.33
2.82

2.61

1.6
3.3

2017 2nd QTR
N/A
2.09
2.31
2.71

2.39

1.72
2.91

2017 3rd QTR
1.18
2.43
2.45
2.84

2.59

1.18
3.51

2017 4th QTR
1.6
2.2
2.29
2.9

2.41

1.6
3.62

Use the arrows to see agency values over time.

prev next

With agencies of $3 million in earned premium or greater selling for a multiple of 2.90 times (.70 times higher than those Allstate agencies with $1 million to $2 million in earned premium) now is as good a time as any to talk about the pursuit of growth and the effects it has on not only the underlying value of your business, but also the amount of income an agency owner can make.

In the section below, my goal is to discuss what I view as the two main residual benefits received when growth of an Allstate agency is realized. I will not discuss the risks and rewards associated with the pursuit of organic growth, nor am I going to discuss the underlying competitiveness of the product being sold, which can be a significant factor in the attainability of growth. It is up to each agency owner to decide to what extent they want to “put the pedal to the metal” with regards to pursuing growth, and hopefully, this section will provide a level of comfort to those looking to take their business to the next level.

The Dual Benefits of Pursing Growth:

Receive a Higher Sales Multiple as You Grow

If homes in your neighborhood are selling for $100 a square foot and you own a 1,500 square foot house, your house is worth about $150,000. If you doubled your square footage to 3,000 through a residential expansion project, you would still likely still get just $100 per square foot if you sell your house or $300,000. Simple math shows that the value of your house doubled based on your expansion project.

Growth of an Allstate Agency allows you to experience not only an increase in top line revenues, but also an increase in the multiple you can charge for your business. This is significant, as doubling top line revenues results in a more than doubling of the value of the business. Let’s look at an example below:

As you can see from the charts above, when you double the square footage of your personal residence, you simply experience a doubling of your residential value. When you double the top line revenues of your Allstate Agency (as was achieved in the example above), you realize an approximate 264% increase in value.

Doubling your revenue, while seeing a 264% increase in agency value is a significant motivator for the pursuit of growth. You aren’t just getting dollar for dollar growth in value, as the market of Allstate Agency purchasers have clearly stated that size matter and that they will pay a higher multiple for a business with more substantial renewal revenue income.
Make More Money

Economies of Scale – “A proportionate saving in costs gained by an increased level of production.” State another way, growth results in more profit.

When an Allstate Agency Owner is able to grow their top line revenues more often than not the agency owner will experience greater amounts of free cash flow. More income in the pocket of the Agency Owner is a great thing, and is the greatest contributor to growth in value.

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

All agencies financed in this size group by PPC LOAN in the Fourth Quarter of 2017 were part of a merger transaction.

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

For the second quarter in a row, 33% of the agencies in this size group were part of a merger transaction. Unfortunately, the average sales multiple for this group dropped in the fourth quarter to 2.20 (well below the multiple of 2.43 realized last quarter). Outside buyers who were awarded the opportunity to reach “scale” through a merger of multiple smaller-sized agencies have historically paid a higher multiple. However, during the final quarter of the year, those outside buyers were able to negotiate a favorable purchase multiple as part of a merger transaction.

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

44% of Allstate agencies transitioned this quarter had earned premium ranging from $2 million to $3 million, a significant uptick from last quarter when this size group only represented 21% of agencies sold. The average multiple for these sized agencies was slightly down at a multiple of 2.29 (the multiple was 2.45 last quarter). Further analysis of this size group shows three items that likely contributed to the decrease in value this fourth quarter:

Outside buyers negotiated favorable deals:
In fact, multiple outside buyers were able to negotiate a purchase multiple of less than 2.0 during the final quarter of the year, which certainly contributed to reducing the simple average for this size group to 2.29.
No merger transactions:
Historically, merger activity has resulted in higher sales multiples, and an absence of mergers this quarter for this size group may have factored into the reduced multiple.
No existing agency purchasers:
In previous quarters, existing agents have paid a much higher multiple than outside buyers for books of this size. The absence of existing agents executing a purchase has likely affected agency values for this size group.

$300,000+ in New/Renewal Commission

In the first quarter of 2017, Allstate agencies in this size group realized a five-quarter high, trading at an average sales multiple of 2.82. This quarter the largest sized agency group exceeded this multiple, realizing an average sales multiple of 2.90. Driving this uptick in value is multiple agencies with over $5 million in earned premium receiving a sales multiple greater than 3.0 times.

Percentage of Agency Sales by Size Group

$0 to $100,000

$100,001 to $200,000

$200,001 to $300,000

$300,001 and up

2007 1st QTR

N/A

2007 2nd QTR

N/A

2007 3rd QTR

N/A

2007 4th QTR

N/A

2008 1st QTR

N/A

2008 2nd QTR

N/A

2008 3rd QTR

N/A

2008 4th QTR

N/A

2009 1st QTR

N/A

2009 2nd QTR

N/A

2009 3rd QTR

N/A

2009 4th QTR

N/A

2010 1st QTR

N/A

2010 2nd QTR

N/A

2010 3rd QTR

N/A

2010 4th QTR

N/A

2011 1st QTR

N/A

2011 2nd QTR

N/A

2011 3rd QTR

N/A

2011 4th QTR

N/A

2012 1st QTR

N/A

2012 2nd QTR

N/A

2012 3rd QTR

N/A

2012 4th QTR

N/A

2013 1st QTR

17%

28%

27%

28%

2013 2nd QTR

N/A

21%

38%

41%

2013 3rd QTR

15%

26%

52%

2013 4th QTR

N/A

25%

42%

33%

2014 1st QTR

15%

58%

21%

2014 2nd QTR

N/A

17%

29%

54%

2014 3rd QTR

N/A

43%

52%

2014 4th QTR

N/A

36%

61%

2015 1st QTR

N/A

12%

41%

47%

2015 2nd QTR

22%

44%

30%

2015 3rd QTR

32%

27%

36%

2015 4th QTR

14%

31%

24%

31%

2016 1st QTR

31%

24%

31%

2016 2nd QTR

N/A

14%

35%

51%

2016 3rd QTR

13%

41%

45%

2016 4th QTR

17%

22%

57%

2017 1st QTR

N/A

17%

22%

61%

2017 2nd QTR

N/A

21%

47%

32%

2017 3rd QTR

25%

21%

50%

2017 4th QTR

24%

44%

28%

Use the arrows to see agency values over time.

prev next

The Allstate buy/sell market in the fourth quarter of 2017 was dominated by agencies with over $2 million in earned premium, with agencies of this size representing 72% of agencies sold.

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

2011 4th QTR

2.3

2.06

2012 1st QTR

2.3

2.02

2012 2nd QTR

2.32

2.05

2012 3rd QTR

2.28

2.05

2012 4th QTR

2.39

2.11

2013 1st QTR

2.3

2.06

2013 2nd QTR

2.33

2.11

2013 3rd QTR

2.5

2.21

2013 4th QTR

2.5

2.19

2014 1st QTR

2.38

2.17

2014 2nd QTR

2.62

2.28

2014 3rd QTR

2.66

2.31

2014 4th QTR

2.69

2.32

2015 1st QTR

2.5

2.19

2015 2nd QTR

2.54

2.21

2015 3rd QTR

2.55

2.24

2015 4th QTR

2.43

2.14

2016 1st QTR

2.35

2.06

2016 2nd QTR

2.59

2.32

2016 3rd QTR

2.58

2.4

2016 4th QTR

2.57

2.37

2017 1st QTR

2.61

2.35

2017 2nd QTR

2.39

2.18

2017 3rd QTR

2.59

2.35

2017 4th QTR

2.41

2.22

Use the arrows to see agency values over time.

prev next

For those agency owners residing in a state where a good portion of the homeowners insurance is written through a third party brokerage company (primarily coastal counties), looking at the multiple of revenues may be your best measuring stick for agency value as it takes into consideration both Allstate and brokered (i.e. non-Allstate) revenues. Certainly, the brokerage book is a reliable source of renewal income and has a level of value that is not presented in the traditional multiple applicable to Allstate commissions.

Being the creator and author of the Allstate Agency Value Index has afforded me the opportunity to write countless articles and to travel on behalf of PPC LOAN to speak to both Allstate Management and the Agency force. In the process, I have learned of the challenges former employees have transitioning to being the "boss" of their newly acquired agency.

So, this quarter I have asked Jaymee Young to share her article on transitioning from an employee, to the boss. If you would like to discuss this article with Jaymee, she can be reached at [email protected] or toll free at 800-456-2779.

Paul Clarke President of PPC LOAN

Learning to Be the Boss - Going from Employee to Owner

You've spent the last several months researching, negotiating, learning about your new business, and finding financing for your acquisition. Your life has been consumed with the purchase process, and as soon as it's complete you'll be a business owner and you'll be up and running, right? Logically we all know it's not as simple as that, but when you have one thing you're focusing on, it's easy to forget that there is so much more to owning a business beyond that takeover date. Soon your day will change from focusing on a specific set of tasks that you had as an employee, to how you are going to run an entire business. Have you taken time out to plan how you will make the shift from employee to business owner? You will be the boss and it's up to you, and you alone, to determine the strategy, implementation, and ultimately the success of your business.

You may have had great professional success prior to this, but as an employee you were able to rely on coworkers/managers/executives to give you guidance and point you in the right direction. Now you'll be the head of every department for your business and will have to make decisions about customer relations, marketing, human resources, budgeting, and any other thing that comes your way. Take some time and start creating a plan on how to best approach these topics.

Day-to-Day Tasks and Knowing When to Let Go

As the boss, you won't have time to deal with every small thing that pops up during the day. This business is your baby and wanting to oversee every aspect of how it is run is understandable, but not feasible. It's amazing how quickly your time can get lost dealing with dozens of small things that people come to you with. These are the kinds of things that, as an employee, you would have dealt with as they came which makes it difficult to take a step back and remember that they shouldn't be your focus now. As you hit the ground running with your new business, you won't have time to waste worrying about putting out small fires. Your time needs to be focused on the big picture, not dotting the i's and crossing the t's.

Make a plan of what tasks you feel are vital for you to take care of as the leader, and what can be delegated to your employees. If you are a people-person and thrive on daily sales, are you going to be happy in a position that requires you spend most of your day doing paperwork? If the answer is no, take time to find the employee that you can rely on to make sure these jobs are still being taken care of and not falling by the wayside. In deciding where to delegate, think about the skill set of each employee and match tasks best suited to them in order to maximize efficiency. After you've had some time to settle into the business, take a good hard look at how your office is functioning. Don't be afraid to make the hard decisions and changes that are often necessary for success. For instance, if you decide you should re-designate a task or duty to a different employee that may be better suited to it, then do so with confidence.

Be willing to acknowledge that other people can do things for you and, in fact, may be able to do them better than you. This isn't a shortcoming on your part, it's simply an acknowledgement that you can't do everything and your skills lie elsewhere.

Communicate with your Employees

If you are retaining employees that worked for the previous owner, assume that there will be some growing pains as you both adjust to the new workplace expectations. Don't forget to talk to your employees and give them clear explanations of what will stay the same and what changes you plan to implement. Keeping communication and goals clear for everyone will not only prevent a lot of confusion, it will take away a lot of unnecessary stress for your new employees that may not know what to expect of their new boss. Remember that this time can be just as stressful for your employees as it is for you as they are trying to please the new boss that didn't hire them, but inherited them.

If there are one or two key employees that have been with the business for a long time, consider setting aside some time to speak with them one-on-one and get their input. They may have some insights into the way the office runs, or some things that could be improved that you're never going to hear from the seller. Don't be too proud to ask for advice that could be invaluable to your business.

Hiring for Your Business

Are you going to need to hire an employee to cover certain aspects of the business that you don't think you'll have time for? Perhaps the previous owner was a marketing genius and had an entire plan in place for expanding the business so they took on the role of marketer. Perhaps you have absolutely no idea how to put together an email campaign. It's ok to have a different skill set as long as you realize where your strengths and weaknesses lie. If there is something you know you'll need help with, start looking for an employee or service that can fill the void. Reach out to others within your industry for tips on where to find good temporary workers, marketing teams, IT support or anything else that you think could be beneficial to your business.

Goals

You have probably written out several lists of the goals you hope to achieve in the first 3 months, 6 months, or year of business, but have you set out a plan on how exactly to achieve those goals? It's all well and good to say you're going to increase your customer base by 10% or increase new calls by 20% percent, but how will you make that happen? Do you have a marketing plan to target a specific group of customers? Will you be participating in community events to get your name out there? What about creating an incentive program for your employees to increase their sales?

"A goal without a plan is just a wish." -Antoine de Saint-Exupéry

Creating a strategy of how to meet your goals is just as important as having them. It's easy to come into a business on day one and say "one year from today I will have doubled my revenue," but it can be overwhelming to actually reach that goal. Take a step back and decide how you can break one large goal down into smaller, more easily achievable goals. The boost you get from accomplishing a goal, no matter how small, can be just what you need to keep pushing and make it to the next goal. If you can keep your momentum going, you'll find it much easier to make it to your larger goal.

When taking on this new role, remember not to sit and wait for things to happen; you're now in charge and it's up to you to make them happen. Keep learning, acquire new skills, network with others in your industry, and research ideas to help your business grow. Remember to take time to work on your business and not just in it.