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Allstate Agency Values Remain Strong – Fewer Large Agency Sales
During the First Quarter of 2014, larger sized agencies with new and renewal commission income of $300,000 or greater represented only 21% of agencies sold during the Quarter. This is extremely low, as these larger sized agencies represented 41%, 52%, and 33% of the total agencies sold in the previous three Quarters (see highlighted below).
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With larger sized agencies selling for the largest multiples, the simple Average has suffered during the First Quarter of 2014, as agencies with over $300,000 in New and Renewal Commission income represented a smaller percentage of total sales. This trend reminds us of the importance of focusing on the sales multiple for each size group, with the remainder of this report focusing on analyzing those Allstate agency sales that took place for each size group.
Percentage of Agency Sales by Size Group | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Agency Analysis by Size Group
$0 to $100,000 in New/Renewal Commission
Of the agencies financed by PPC LOAN in this size group, all were purchased as part of a merger transaction by an Allstate-approved Outside Buyer. In each instance, this small-sized purchase was executed as part of a transaction where the Outside Buyer’s combined / merged Earned Premium was approximately $3,000,000 at the time of purchase.
Representing only 6% of the total agencies financed in the First Quarter of 2014, it is hard to rely on the statistical accuracy of the resulting 1.74 times multiple reported above. Certainly, the multiple for which an agency is sold depends heavily on the quality of the agency’s performance and for what purpose the agency is being purchased (satellite or merger). However, my gut tells me a 2.0 times multiple is certainly in the ballpark of a fair price, especially in those instances where the agency is part of a merger transaction.
$100,001 to $200,000 in New/Renewal Commission
Of the agencies financed by PPC LOAN in this size group, most were purchased as part of Allstate’s Agency Development Bonus (ADB) program where incoming agents receive 80% of the start-up tiered incentive compensation when purchasing an agency between $800,001 to $1,500,000 in Earned Premium.
Financing Agencies with Earned Premium below $1,500,000 as a stand-alone agency is a new phenomenon for PPC LOAN, and we are starting to extend capital for agency purchases that qualify for ADB and have Earned Premium between $1,000,000 and $1,500,000. Based on conversations members of PPC LOAN had with Sales Leadership at the March 2014 National Forum, it is expected that demand for these sized agencies that qualify for ADB will remain strong due to the competitiveness of the underlying product being sold, matched with the opportunity to reinvest ADB funds for growth purposes.
$200,001 to $300,000 in New/Renewal Commission
Almost 60% of the agencies financed by PPC LOAN in the First Quarter of 2014 were in this size group – a sweet spot for Outside Buyers wanting to join the ranks of agency ownership, or existing Allstate agency owners looking to take on a satellite location. Of the agencies in this size group, the transitions had the following makeup:
Recent history shows that Agencies in this size group traditionally sell for a 2.30 to 2.40 sales multiple. At 2.35 times for the First Quarter of 2014, agencies in this size group are selling at a multiple well in line with recent averages.
Agencies of this size tend to be attractive to individuals looking to join the ranks of Allstate Insurance, as:
$300,001+ in New/Renewal Commission
All agencies purchased in this size group during the First Quarter of 2014 were purchased as a single location by an Outside Buyer. At 2.70 times, the multiple for these sized agencies is very strong, especialy considering just one year ago the average multiple paid for these size agencies was 2.51 during the First Quarter of 2013.
Allstate Agency Value Ratios | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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