Acquirer (The Buyer)

The firm which is purchasing the agency or book of business in the acquisition.

Agency Acquisition

The purchase of more than 50% controlling interest or full ownership of another agency.

Agency Valuation

Is the process of determining the economic value of an insurance agency. A thorough financial and operational analysis is performed. Valuations are used to help determine the sale value of an agency, establishing partnership ownership and taxation. There are different types of valuation methods. One of the most common agency valuation metrics is calculating a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization).

Annual Revenues

Is the total amount of revenues an agency makes during a 12 month period in commissions, contingencies, profit sharing, fees, etc.

Asset Sale

The type of sale in which some or all of the business’s actual assets are sold, tangible and intangible, as opposed to shares of stock. Tangible assets include equipment, office buildings and other physical assets. Intangible assets include customer lists, licensing, trade names, copyrights and other assets that are non-physical.

Balance Sheet

States a business’s assets, liabilities and owner’s equity at a specific point in time.

Deal Structure

Are the “terms and conditions” of the agreement between both buyer and seller in an agency acquisition or merger.

Dry Powder

Refers to cash reserves that Private Equity funds and Corporations have available to deploy when an attractive investment opportunity arises, or to weather a downturn.

Due Diligence

A buyer conducted essential, in-depth financial, operational and legal review and confirmation of the target agency that is completed in an agreed upon period of time.


EBITDA stands for earnings before interest, taxes, depreciation and amortization and is a metric used to evaluate and measure agency operating profitability. EBITDA is a common valuation metric used to help determine the value of an agency.

EBITDA Multiple

Is an agency valuation metric. The EBITDA multiple is a ratio which measures the value of a company.


Is a negotiated pricing structure in an agency acquisition that is dependent on post closing performance. The seller must earn part of the purchase price or has the ability to earn additional money depending on the performance of the agency post closing.


The value of shares issued by a company.

Exclusivity Agreement

An agreement that places limitations on the seller to solicit an offer from or negotiate with a third party for a specified period of time.

Exit Planning

Is the complete strategy for exiting your independent insurance agency. Exit planning includes a complete financial, legal and tax analysis of your agency. The purpose of an exit plan is to help ensure that your agency value is maximized at the time of exit, all your goals are met and your tax liabilities are reduced.

Free Cash Flow

Free cash flow (FCF) represents the money an agency generates after accounting for expenses to support operations and maintain capital.

Letter of Intent (LOI)

Is a non-binding document which outlines an agreement in principle for the buyer to purchase to seller’s agency or book of business. The LOI outlines the main terms of the deal, including the proposed purchase price and terms of the transaction. Both the buyer and seller must sign before the buyer proceeds to the due diligence phase.

Multiple of Revenues

Is a valuation metric. It is a ratio that is used to measure agency value based on annual gross revenues. Multiple of revenue is equal to the selling price of an agency divided by 12 months’ of revenues of the agency.

Net Book Value of Assets

Book value of assets minus book value of liabilities

No Fee to the Seller

Phrase used to indicate that the seller is not required to pay the success fee.

Non-Disclosure Agreement (NDA)

Is a legally binding contract to establish confidentiality between two or more parties. It is a common agreement which allows for sensitive information to be shared between the parties without fear that information will be disclosed to others.
NDA’s are often referred to as confidentiality agreements.

P&L (Profit & Loss Statement)

Is a financial statement that summarizes the revenues, costs and expenses incurred during a specific period.

Personal Goodwill

A premium that is being paid over and above the sellers net identifiable assets. The acquirer is paying an excess of price for intangible items such as customer loyalty, strong industry reputation, unique skills and expertise. When selling a “C” corporation, there are built-in-gains; the seller should consider the tax benefits of personal goodwill.

Private Equity Firm

Is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital.

Purchase / Sale Agreement

The purchase agreement is a comprehensive legally binding contract that documents all the terms agreed upon between buyer and seller in an agency transaction. The key components of the agreement include buyer and seller information, pricing and financing, representations, warranties, schedules and indemnifications, interim and post closing covenants,  closing conditions, break up fees, etc. Generally, the buyer’s attorney will draft the first agreement. Once agreed upon by both parties’ attorneys, both buyer and seller will sign the contract.

Seller Note

A common type of debt financing in agency acquisitions in which the seller agrees to receive a portion of the purchase as a series of installment payments. They are most often interest bearing and completed over a period of years.

Stock Sale

In a stock sale the owner, shareholder of the agency, sells their existing stock to the buyer. In this type of sale, the buyer obtains the agency assets and liabilities. An LLC, partnership and sole proprietorship do not issue stock and therefore are not eligible for a stock sale.

Success Fee

Is a type of compensation structure that is paid for the successful closing of the transaction. The fee is contingent on the completion of the deal and is calculated as a small percentage of the sale value.

Target Agency

The agency that is being acquired, the seller.

Trailing 12 months (TTM)

Is a term used to indicate the previous 12 consecutive months of a company’s financial data.

Transition Period

A negotiated period of time post closing in which the seller is required to remain involved with the agency to varying degrees. Transition periods can be as short as one to two months and up to three years or more. Transition periods are required to help assist the new owner in strengthening customer and carrier relationships and to help shorten the overall learning curve.

Valuation Multiple

Is a ratio used to measure the value of an agency or firm.