Survey also found most respondents would prefer to sell to another broker rather than a consolidator

Twenty-seven percent of brokers have not considered an exit strategy, according to a succession survey of business owners. The survey, carried out by Insurance Times in partnership with Aviva, asked respondents whether they had thought about their succession plan/exit strategy.

Part of the issue, particularly for smaller brokers, according to David Smith, senior sales and distribution manager at Aviva, is that business owners and directors tend to underestimate how much time it will take them to finally exit the market.

“If someone was to walk away from the business having worked through their earn-out and maximised the value of their business, and they wanted to do that when they were 65, the likelihood is they are going to have to start the process at 61,” he said. 

“They are going to be looking at least a two-year earn-out from the day they originally sold the business. That means that they’ve got to have sold the business when they’re 63. 

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“Then there’s likely to be anything up to 12 months of due diligence depending on the size of the broker and the complexity.”

He added: “And of course, you’ve got to then find the person that you actually gel with and want to sell your business to. You might be lucky, it might be the first person you approach but it could take months or even a year to find the right buyer. So you could be looking at a time frame of four years if you want to exit completely at the age of 65.”

The survey also asked respondents what their preferred exit strategy would look like. Nearly 40% said they would prefer to sell to another broker, followed by 29% who said they would opt for a management buy-out. 

Just 13% said they would consider selling to a market consolidator. Reasons given included a desire to keep firms “in the family” and “remain independent” and that it would “not be in the best interest of clients or staff”. 

Brexit fears are driving succession planning

Ongoing concerns and uncertainty around Brexit, and fears that the UK could leave the EU without a deal is driving interest in succession planning, according to a survey of 250 brokers carried out by Aviva in partnership with FWD. 

The Broker Barometer found a significant jump in brokers with a succession plan in place (from 25% to 56%) in the space of six months. Meanwhile the percentage of brokers concerned about the impact of Brexit grew from 3% to 22% during the same period.

According to Phil Bayles, Aviva’s managing director, intermediaries: “Our first broker barometer survey in 2018 highlighted a lack of longer-term thinking across the piece, and I’m delighted so many brokers are starting to address this by putting a succession plan in place. 

“Taking the time now to plan for the future will enable brokers to protect their legacy for tomorrow and beyond.

On 8 August, Biba chief executive Steve White and ABI director general Huw Evans attended a Brexit preparedness meeting at 10 Downing Street, hosted by government minister Michael Gove. 

At the meeting, which brought together 18 industry bodies from various sectors, the concerns of insurers and brokers were “raised and noted”, according to White.

Uptick in employee-owned firms

Employee ownership (EO) is becoming an increasingly popular exit strategy for private businesses, but is still in its infancy as an option for general insurance brokers. EO is where staff themselves directly hold a majority of shares in their firm, or shares are owned on their behalf via an employee trust. 

This approach has been found to produce an “ownership dividend”, including better employee engagement and improved resilience during times of recession or economic difficulty.

There are currently 370 EO businesses in the UK, with 60% of conversions taking place since 2014, according to the Employee Ownership Association (EOA), the year the Employee Ownership Trust (EOT) was introduced in the Finance Bill.

EO is not just a strategy for smaller broking firms. Hyperion Insurance Group and Minova Insurance are amongst the UK’s 50 largest EO companies, with 3,794 and 412 employees respectively. Following its merger with RK Harrison in 2015, Hyperion became the world’s largest employee-owned insurance business. 

“Giving staff a stake in the business is the most powerful thing any employer can do,” said Deb Oxley, EOA chief executive. “Our, and the FSB’s, conclusion is that EO is an extremely useful option when owners are thinking of exiting their business.” 

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