valuing your mga presented by cameron jacox and james hilton june 1, 2011 share the tools
TRANSCRIPT
Valuing Your MGA
Presented by Cameron Jacox and James HiltonJune 1, 2011
Share the tools
Valuing your MGA
James E. C. HiltonCameron D. JacoxManaging PartnerManaging Partner
Age, brand, vintage, region
Complementary consumption
Consistency drives value higher
More confident purchase
Wine:
Wine Comparison | Consistency assumed
Completely cash-flow based
Ignores advisor-level growth
opportunities
Client-centric business
3-5x Service fees
3x Segregated fund trailers
Traditional Multiples | Only one piece of the puzzle
Key Questions | How do I…
…prepare it for an optimal valuation?
…develop operations for long-term growth?
…go shopping for MGAs and drive consolidation?
The Original MGA | Boost valuation multiples
1900
Western expansion Localized broker support Provided more resources Drove growth
The Canadian MGA | An entrepreneurial endeavor
1980s
Few market penetration or capital issues
Global outsourcing trend Focused on core competencies
MGAs will be more closer with advisors
Transforming Industry | Boost valuation multiples
No “pledge of allegiance”
“The marketplace has reached the end
of the commoditization cycle”
–Jim Burton
Regulatory uncertainty
Industries that fail to fight against
irrational regulation become grey
It’s the wild west again!It’s the wild west again!
Valuation Calculation | What is it worth?
Start: Multiple of Service Fees (3-5x)
Less: (Lapse Rates)
(Compliance Issues)
(Buyer’s Supplier Power)
Add: Broker Loyalty and Age
Positives of the above
____________________________
= $_ _ _,_ _ _,_ _ _._ _
MGA Valuation | Advisor based valuation model
Advisors
Advisors are
everything
MGA consists of advisors
Detailed advisor-level analysis is needed for serious MGA valuation
Growth comes from within
Book Valuation | Succession
High policyholder attrition (5-10%)
80:20 rule for advisors
Client and policy structure Age of clients internal growth opportunity Advisor = Brand
2.5-3.5X2.5-3.5X RenewalsRenewals
0-2X0-2X New BusinessNew Business
Normalize revenues Excessive expenses One-off large cases
Revenue capacity of book Was broker hunter or
sitting on book?
Book Valuation | Succession
MGAValuation | Components
Advisors age & succession
Lapse rates
Advisor loyalty
Compliance issues
Future regulation
Advisor Age | Succession & Retention
Rare advisor-MGA allegiance
Advisor age as important as production
Books switch hands after a transfer
Plan for advisor succession Transfer books to close colleagues
Lapse Rates | Above or below average
Enormously reveals a book’s true quality
Improper sales by unscrupulous advisor?
Is the business stable?
CCIR Issues Paper | Lack of clarity…
…“Compliance…screening representatives for suitability and monitoring their behavior”
…“Lack of clarity… [in] roles, responsibilities, accountabilities and… oversight of the agent, the MGA, and the insurer”
CCIR Issues Paper | Effect on valuation
Conservative operations +
Ability to integrate hypothetical mandates +/-
Client-product suitability Advisor oversight systems Advisor screening
Dress it Up, Develop it, or Go Shopping?Dress it Up, Develop it, or Go Shopping?Dress it UpDress it Up, Develop it, or Go Shopping?, Develop it, or Go Shopping?Dress it Up, Dress it Up, Develop itDevelop it, or Go Shopping?, or Go Shopping?Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
How to maximize How to maximize your valuation your valuation
and shop your and shop your MGAMGA
Taking Action
Broker Value-adds | Brokers improve the MGA
Pushing valuation improvement to broker level
Revenue improvement will always trump cost efforts
Broker success = MGA success
Dress it UpDress it Up, , Develop itDevelop it, or , or Go ShoppingGo Shopping??
Hunters vs. gatherers Sitting on opportunities within
their book that could maximize value to policyholders, carriers, and themselves
Active policyholder marketing
Broker Development | Building from within
Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
Reduce lapse rates72% over age 50
Increase premiumTotal actual
premium
Service clients
Policy Loans | Book consulting example
Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
It’s Time… |
……Time to Go ShoppingTime to Go Shopping
Book Acquisition | Vertical Integration
Acquisitions Multiples are low
Mitigates risks associated with the revenue model
Attrition highest among high-touch advisors
Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
Dress it Up, Dress it Up, Develop itDevelop it, or , or Go ShoppingGo Shopping??
Capital Structure | Risk Growth
Incentivize advisor book acquisition
Vertically integrate while gaining market share
Take an ownership %
Play offensively not defensively
5-7x is possible if: High technology adoption
Strong differentiation
Succession strategy is being
implemented
Advisor sales assistance
Regulatory certainty
Boosting Profitability | For the long run
Multiples are relatively low - room for improvement
Thank-you
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[email protected] | [email protected]
More information: (slides, articles, etc)
http://summit.jacoxhilton.com