All The Hype Lately is Selling Your Medicare Book of Business...Can You Sell Yours?
Drew Gurley
EVP of Growth | Redefining Insurance FMO Excellence | Championing Experiential Innovation
Selling Your Medicare Agency / Book of Business
Everyone in the financial services and insurance business lately seems to be selling their insurance agency and a lot of you are asking yourself, “I wonder what my book of business is worth and can I even sell it?”
The short answer is yes, you can sell your agency. It just depends on a number of factors and a detailed due diligence process. And, you need to find the right buyer.
The overwhelming truth about the insurance industry right now is that the senior healthcare market continues to rapidly grow with the continued expansion of the baby boomers turning 65 and needing Medicare insurance, especially Medicare Advantage. The opportunity for growth has been, and still is, very hot.
But, don’t just take my word for it. See what HealthAffairs.org has to say about it.
After a 9 percent increase from 2021 to 2022, enrollment in the Medicare Advantage (MA) program is expected to surpass 50 percent of the eligible Medicare population within the next year. At its current rate of growth, MA is on track to reach 69 percent of the Medicare population by the end of 2030.
Due to this growth, we continue to see an incredible amount of consolidation for those insurance agencies focused on health insurance, specifically Medicare which includes both Medicare advantage and Medicare supplement.
There has never been a more exciting time for qualifying health agency owners to consider what a potential exit or transfer of equity looks like via full or partial acquisition, both of which will have some type of earn-out scenario. We’re even seeing some highly successful independent agents qualify for similar firm valuations that were previously flying under the radar.
But what does it take and how do you get started?
How to Sell Your Medicare Book of Business?
The first question we get is, “how is a Medicare book of business valued or how do I determine a sale price?”
Valuation rule of thumb is most commonly a multiple of adjusted EBIDTA which is earnings before interest, depreciation, taxes, and amortization. You can read more about adjusted EBIDTA here.
The next item is product mix.
Various insurance products are valued differently based on first year commissions and subsequent residual income. For example, a prospective buyer isn’t going to pay the same multiple on a $1M adjusted EBIDTA from term life insurance as they might for $1M in Medicare advantage or Medicare supplement sales.
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Health insurance builds a residual book of business overtime with a higher life time value which has a big impact on valuation and final purchase price, especially when paired with a strong and steady growth strategy that the new owner can count on to continue profitability or support a strategic initiative.
Medicare advantage plans and Medicare supplement plans seem to be the hot trend in the acquisition pool, but other insurance brokerage products are also being considered.
Want to learn what your agency is worth?
Primary consideration factors for selling your book of business.
Below are the initial items a potential buyer is likely to ask you for after you’ve executed a mutual NDA.
The next step of the sales process after the initial discovery is receiving a letter of intent which is typically for a set period of time such as 60-90 days. During that time you will begin the due diligence process with your prospective buyer to work through the final value of your agency and kick off deal underwriting. This is a key element of support you can expect from a business broker and CPA if you planned to take your agency to market ahead of finding a potential buyer or M&A deals.
Additional insurance mergers and acquisitions considerations.
Aside from the standard considerations, below are some additional areas that may be considered by a potential buyer. It’s important to have everything organized so a buyer can easily see the value of your book and how it will sustain the current customer base and continue to show profitability post acquisition.
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2yGreat article.