Valuation Math: Taking the
Mystery Out of Agency Valuation
TOM BRANIFF, J.D., CPCU
Range of Acquisition Values (as
expressed in multiples of revenues)
• Trade reports: .7 to 3.2. Average 1.3
• IIAT Matchmaker: 1.3 to 2. Average 1.5
• Subject to payment terms
Components of Valuation
• Pro forma Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
• Risk or discount factor
• Tangible value of the balance sheet
• Working capital
• Payment terms
Preliminary Info
•
•
•
•
•
•
•
•
Identify non-negotiables or deal killers
Verify seller entity type
Year to date and most recent 2 - 3 year end financials
Copy of company’s printed premium/loss ratio reports for
previous 3 years
Year end production reports from carriers with loss ratios
Determine who owns agency/book of business and who’s
authorized to make sale
Resumes of staff & any employment agreements
E&O Claims history and current open claims
Sample Pro-Forma EBITDA Worksheet
Sample
Adjustments
Revenues
P-C Commissions &
Fees
Group/Health/Life
Contingent/Bonus
Miscellaneous
Gross Revenues
Less outside
commission
expense
Net Revenues
Compensation
Expense
Executive Payroll
Production Payroll
Service & Support
Payroll
Employee Benefits
Total
Compensation
Expense
Actual
%NR
Adjustments
Pro Forma
$260,202
$21,872
$51,787
$532
$334,393
77.81%
6.54%
15.49%
0.16%
100.00%
(25,000)
(25,000)
$260,202
$21,872
$26,787
$532
$322,119
$334,393
100.00%
- (25,000)
$322,119
$80,000
$3,821
23.92%
1.14%
(40,000)
$115,438
$34,610
34.52%
10.35%
(12,459)
$115,438
$21,316
$233,869
69.94%
(52,549)
$181,410
$40,000
$3,821
Adjustments continued
Operating Expense
Occupancy
Telephone
Postage
Supplies/Printing
Dues/Subsc/Contributions
Taxes/Licenses
Insurance
Professional Fees
Equipment Rental/Maintenance
Bad Debts
Outside Services
Education/Training
Miscellaneous
IT Expense
Total Operating Expense
Administrative Expense
Amortization
Depreciation
Officer Life
Interest
Total Administrative Expense
$
$
$
$
$
$
$
$
$
$
18,822.00
6,181.00
2,558.00
2,371.00
698.00
108.00
7,272.00
3,160.00
9,232.00
57.00
$
$
1,260.00
1,212.00
$
52,931.00
$
396.00
$
$
$
324.00
720.00
5.63%
1.85%
0.76%
0.71%
0.21%
0.03%
2.17%
0.94%
2.76%
0.02%
0.00%
0.38%
0.36%
0.00%
15.83%
$ (4,770.00)
$ (900.00)
$ (7,500.00)
$
1,260.00
0.12% $
0.00%
0.00%
0.10% $
0.22% $
(396.00)
$ 18,822.00
$ 6,181.00
$ 2,558.00
$ 2,371.00
$
698.00
$
108.00
$ 2,502.00
$ 2,260.00
$ 1,732.00
$
57.00
$ 2,520.00
$ 1,212.00
$
$ (11,910.00) $ 41,021.00
(647.00)
(720.00)
$
$
$
$
$
(323.00)
-
Total Expense
$ 301,558.00
90.18% $ (71,429.00) $ 230,129.00
E&O Expense
$
-0.04% $
Total Expenses
$ 301,426.00
Pre-Tax Profit
$
(132.00)
32,967.00
132.00
$
-
90.14% $ (71,297.00) $ 230,129.00
9.86% $ 46,297.00
$ 79,264.00