Book of P&C Business Purchase

[risky business]

I have a unique situation and opportunity to purchase book of business.
I came to agency when a producer was ready to retire. I was hired to handle book of business and grow that book. Over the past 15 years I have sold accounts and grown the book from leads provided by the agency. Now the person who was the agency owner when I came on board and now is the owner of the book and receives 50% commission from the agency wants to sale and wants me to purchase the book. I spent my time and money building the book from about $120,000 in revenue to over $400,000 in commission revenue.
The book owner wants 1.5 times 100% of annual commission ($600,000) for the book.
Problem 1: Leads that were sold came from the current owner, where would I get net leads -
Problem 2: have to borrow the $600,000- Will I have enough to pay back bank
Problem 3: I am already over 60 years old. - Will I live long enough to pay back and make a return on investment
I currently get .20% of agency total commission
New arrangement will get .50 of agency commission

What would you do?

 

[whatyouwantfinally]

I have a unique situation and opportunity to purchase book of business.
I came to agency when a producer was ready to retire. I was hired to handle book of business and grow that book. Over the past 15 years I have sold accounts and grown the book from leads provided by the agency. Now the person who was the agency owner when I came on board and now is the owner of the book and receives 50% commission from the agency wants to sale and wants me to purchase the book. I spent my time and money building the book from about $120,000 in revenue to over $400,000 in commission revenue.
The book owner wants 1.5 times 100% of annual commission ($600,000) for the book.
Problem 1: Leads that were sold came from the current owner, where would I get net leads -
Problem 2: have to borrow the $600,000- Will I have enough to pay back bank
Problem 3: I am already over 60 years old. - Will I live long enough to pay back and make a return on investment
I currently get .20% of agency total commission
New arrangement will get .50 of agency commission

What would you do?

Sounds confusing; this guy "owns" the book but only gets 50% of the commission from the agency? Does he just have an agreement that he gets half, and that's what he's trying to sell you? If so, is he even allowed to transfer that interest per his agreement with the agency?

Also, you're probably in a hell of a situation to negotiate. Who else would even make him an offer? I doubt he's allowed to take the clients from the agency, and no one outside the agency is going to buy interest in a book of business that won't even be in their name.

He's asking top dollar for a stake in a book that he can't realistically sell to anyone else and he's obviously doing so because he wants a lump sum of $ rather than steady income for some reason. Low ball him to death (like 1-1.25X what he makes off it in a year so you know 100% you'll profit from it and quickly) and if he says no tell him firmly no thanks. You don't want to be borrowing money to buy a book that won't be in your name anyway.

 

[risky business]

Thank you for the reply. The way the agency sets it up is the agent owns the book but pays 50% of the commission to the agency to service the accounts and 50% of the commission goes to the agent. This "agent" hired me to work the leads and sell the accounts but he gave the lead to me so he is considered the owner agent and I am the operating agent which get 20% (he keeps 30%). He wants 1.5% of the total 100% of the commission to release ownership to me of all the accounts that I have sold for the past 15 years.
Yes currently he gets 50% which he pays me 20%. I will go from earning 20% to 50% of total agency commission but paying the bank what is equilvant to 7.5 years of my current income and give him 5 years worth of commissions in a lump sum. I have to borrow from the bank which adds 5% commission. My take home pay would actually be several thousand dollars less a month after paying the bank what they want for 10 years and then it will jump to more than double current salary when the bank is paid in full.

He also say he will not budge 1 penny less than the 1.5% of total agency commission.

 

[whatyouwantfinally]

That is completely absurd. 1.5X (depending on tons of factors) is usually what you can ask if you are selling 100% interest in the book; he is asking that for a 50% interest. New car sticker price for a half-beat used car.

I would tell him "NO" in a manner that expresses my awareness of how stupid that offer is and my disgust at learning how little he thinks of my intelligence.

Also, be wary of him going forward. He's either crazy or thinks you are.

 

[VolAgent]

So are you getting the agency as well, or just the book of business? How this is written and perhaps structured is a bit confusing.

It sounds like all commissions are paid personally to the retiring agent, who then puts half of it into the agency to run the agency. He retains the other 50% out of which he has been paying you as your compensation. Is this correct?

So again, what are you getting, half interest in the book with a third party agency having the other half? Or do you get the entire enchilada, book and agency? If all you get is half, you are effectively paying him 3x revenue, so I'd tell him to go pound sand.

 

[risky business]

How it works in the agency is the producers own their book of business, the agency keeps 50% of the commission to pay the customer service people, the rent, the E & O, phones, computers, etc and gives the producer 50% of the agency's commission. The agency has agreed to let me be producer and they retain 50% for the above mentioned expenses and gives me 50%. The current retiring producer is asking 1.5 of of 100% of the commission.
I will in essence be paying 3 times my take for the book.

$3,000,000 book with $300,000 in total agency commissions. $150,000 to producing agent.
He wants $450,000
That is 3 years of commissions.
Bank will loan but at 5.5% so that is another $100,000. So it would be four years before I start getting any money back.

 

[indienoise]

No, no, and no. Like has already been mentioned, he is asking a fair price if he owned the book outright. But that's not what you would be getting. If you even buy his interest in it, it needs to be at what he makes off it, not before the agency takes their cut.
I kind of feel like it ought to be closer to 1x, IF you even go through with this.

 

[todd02]

Agreed I would pay half his asking price since you're not getting 100% of the commission. It never costs 50% to service. More like 20-30%.

 

[ktmorgan]

Anyone who is considering buying anything from another Agent/Producer/Rep must first define if one is buying, 1) a "Book," 2) a "Practice," or 3 a "Business." Each has a specific definition and each has a direct relationship on longevity and therefore, price to be paid.

Do yourself a HUGE favor and read David Grau's site and his books on valuation.
https://www.fptransitions.com/

https://www.amazon.com/Succession-P...TF8&qid=1488742756&sr=8-2&keywords=David+Grau

https://www.amazon.com/Selling-Valu...TF8&qid=1488742804&sr=8-1&keywords=David+Grau

I have a unique situation and opportunity to purchase book of business.
I came to agency when a producer was ready to retire. I was hired to handle book of business and grow that book. Over the past 15 years I have sold accounts and grown the book from leads provided by the agency. Now the person who was the agency owner when I came on board and now is the owner of the book and receives 50% commission from the agency wants to sale and wants me to purchase the book. I spent my time and money building the book from about $120,000 in revenue to over $400,000 in commission revenue.
The book owner wants 1.5 times 100% of annual commission ($600,000) for the book.
Problem 1: Leads that were sold came from the current owner, where would I get net leads -
Problem 2: have to borrow the $600,000- Will I have enough to pay back bank
Problem 3: I am already over 60 years old. - Will I live long enough to pay back and make a return on investment
I currently get .20% of agency total commission
New arrangement will get .50 of agency commission

What would you do?