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2013 Q3

Third Quarter 2013

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Allstate Agency Values Hit Four-Year High

The simple average of Allstate agencies transitioned in the Third Quarter of 2013 was 2.50, a benchmark that has not been accomplished since the Second Quarter of 2009 when the average multiple was also 2.50 times. So what is driving this four-year high in Allstate Agency Values?

Desirability of the Outside Buyer Test Program – Buyers are seeing opportunities in this program not only in the form of heightened commission income available, but also in the underlying competitiveness of the product they are selling. Those books sold with Earned Premium of $1.5 Million or less (hence qualifying for enhanced commission) sold at a multiple of 2.24X – a strong multiple rarely received by the smallest of agencies. Historically, smaller sized agencies have dragged the average multiple down, so the Test Program has been significant in increasing the overall simple average multiple.

Large agencies viewed as more desirable than ever – Who wouldn’t want to own an Allstate agency with $400,000 in commission income and a profit margin in excess of 50%? The economics of these sized agencies makes them attractive to entrepreneurs and the relative scarcity of these agencies on the market has helped to ensure their value remains high. Books over $3 Million in Earned Premium increased from a 2.57 sales multiple in the Second Quarter to 2.68 times in the Third Quarter of 2013.

Less than Desirable

I note from analyzing the pool of Allstate agencies sold in the 3rd Quarter that books above $1.5 Million and below $2.0 Million in Earned Premium sold for an average multiple of just 2.07 times. This is below the 2.24 multiple paid for agencies with Earned Premium below $1.5 Million, and is likely driven by these sized agencies ($1.5 Million to $2.0 Million in Earned Premium) not qualifying for the Outside Buyer Test Program / Enhanced Commission.

What these numbers tell me is that agency buyers see greater opportunity in purchasing a $1,400,000 Earned Premium agency that qualifies for enhanced commissions, over purchasing a $1,700,000 Earned Premium agency that does not qualify for enhanced commissions.

It is worthy to note that once the Earned Premium of the agency being purchased exceeds $2.0 Million, multiples appear not to be affected by the absence of Enhanced Commissions and are selling at multiples in-line or even above historical levels.

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 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

Use the arrows to see agency values over time.

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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

Use the arrows to see agency values over time.

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2014 NATIONAL FORUM – A VENDOR'S PERSPECTIVE

Succession Planning - Are You Prepared to Die?

Every once in a while, I come across an Allstate sales transaction that I view as anomalous and do not include it in the calculation of the Allstate Agency Value Index for that Quarter. This is a rare occurrence and has typically been when an agency owner is selling to a son or daughter for well below market value. Since the Seller has made a conscious decision to knowingly sell for less than market value to a relative, I have made the decision to exclude these sales from the Quarterly Report.

This Quarter (3rd Quarter 2013), I had to make a tough decision on a single transaction that one could argue should be characterized as an anomaly. Here are the facts. The agency was between $2.5M and $3M in Premium. Retention and Loss Ratios were both better than average and the agency was located in a desirable part of the country. The only problem was the Seller was deceased and the spouse had no idea what to do with the agency.

Without going into too many details, a staff member in the office bought the agency for 1.4 times, which was essentially the TPP Value. The book was large in size and quite frankly should have sold for a much higher multiple.

Even though I classified this agency sale as an anomaly, it is not. This happens more than once every year where a grief stricken widow is scrambling to sell an asset they know nothing about. So let me ask you the question that was in the title of the article "Are You Prepared to Die?"

I'll admit, I don't have all the right answers and I am not recommending a certain succession planning strategy. However, I do know agency owners need to ask themselves a few questions:

If you die, would your spouse / family / significant other know who to call and how to handle the sale of your agency?
Have you left a note for those in charge of taking care of your agency describing what a fair price is and who might want to purchase?
Do you have someone in the family who might be a good fit to take over the agency in your untimely death that could quickly become an approved buyer with Allstate?

Succession Planning has been a hot topic amongst the agency force and Management. I have attended Regional meetings this year for agents where the company paid for attorneys and other professionals to speak about succession planning.I also presented at these meetings and I can tell you they were very well attended. If you get an opportunity to attend a meeting on Succession Planning I highly recommend you do. I don't take much joy in financing the sale of high quality agencies at 1.4 times. Market Value should rule the day and this can only be accomplished by those who as the title of the articles states are "Prepared to Die."