Look at the big picture.  Any ownership transfer should be made within the context of the agency’s overall strategic vision and plan.   That way, the agency will be in a better position to take advantage of opportunities that are presented.  

Before you ask which agency's computer system you will retain or which staff members should stay on the payroll, arm yourself with the information needed to evaluate whether or not this transaction is right for you--now or in the future. In other words, what's in it for you and your agency?  Does it fit with your overall strategic vision? Benefits can be as obvious as increased volume or access to new carriers.  Or, the benefits can be less tangible--the addition of expertise or management succession.  Or it may simply be spreading the workload across more owners.  

Make sure the numbers work.  Whether you're buying or selling, or simply planning to perpetuate the agency internally, when a potential candidate is identified, it's important to set realistic expectations. As a buyer, you need information on the financial position of the seller and the ability to  forecast future revenue growth, profits and cash flows.  After all, the value of an agency is essentially based on the net future cash flow it can reasonably be expected to generate discounted to the net present value.  

As a seller on the other hand, you need to have some level of confidence that the buyer will in fact be able to meet their financial obligations.  Since most agency acquisitions are seller financed, it's important that the deal can "pencil out."

Perform your due diligence.   The devil is in the details.  Merging the  workflow, staff and business philosophies of two agencies is no small task.  Day-to-day issues will critically affect the new entity if and when the transaction is completed.    A detailed agency operations analysis is an absolute requirement to understand the strengths and weaknesses of an organization and be able to evaluate the potential risks associated with the deal.  Success is never guaranteed but the chances are much better when serious thought has been given to these issues prior to finalizing the deal.

Review the book of business.  The single largest asset of any insurance agency is its book of business.  It's critical to determine the compatibility and identify any potential problems that may result in loss of the business or companies that make up the value of the merger or acquisition.

The price is not the price.  The days of determining agency value by using a simple revenue multiple are long gone.  Years of merger/acquisition activity--some of it with disastrous results--have taught agencies that they need to dig deeper to place a value on an agency.  And how the deal is structured is even more critical that the price since in the long run, this will determine how much the seller actually receives. 

Agency valuation is an art, not a science and is best left to the professionals to analyze net worth, sustainable profit and risk factors in order to determine an agency’s fair market value.  There are, however, some basic exercises and formulas for determining the starting point for negotiating dollar value. For more information on determining agency value see Maximizing Agency Value and Using Outside Consultants.  

Think to the future.  Once the deal is consummated, it'll be time to dot all the "i's" and cross all the "t's."  In other words, you need a post-transaction business plan--a plan that lays out the operating nuts and bolts needed for the transition.  Things like the name of the new entity.  Informing clients and assuring them that the agency will be stronger, provide even better customer service and be better able to meet the clients needs.  Contracts are an important piece of this plan.  You'll have to contact all your carriers to make sure there will not be a problem. And, there are leases, producer agreements, etc., to contend with.  

If you wait until the deal is done to think through these issues, you may end up with some unpleasant surprises.  More than one merger has been cancelled at the last minute because the new owners couldn’t agree on the new agency name or who would manage the operation.