An important consideration for any firm that sells to an external buyer is when to communicate the sale.
You need to communicate to employees, carriers, clients and the public. The strategy around these discussions should be well thought out and coordinated with the buyer. The seller must balance who is required to be told and whom they feel they have an obligation to tell. If not managed properly, an announcement often creates unnecessary drama and potential deal issues. Ultimately everyone will be informed, but determining when can be critical to a successful transaction.
Most buyers will work with a seller to help coordinate communication to both carriers and clients. This is typically done immediately prior to closing or shortly thereafter. Some carrier communications may occur during the due diligence process when the carrier contracts require prior written approval for the appointment to transfer to the buyers. Otherwise, they are notified after the fact.
Clients are typically divided into different categories. Some will be told during a face-to-face meeting, some get a personal phone call. Still others will get a letter via snail mail. If done properly, these are all typically nonevents.
The heartburn really exists in employee communications. The “all employee” communication usually occurs a week or two prior to closing the transaction. Employees usually want answers to:
- Do I still have a job?
- Is my compensation changing?
- What is happening to my benefits?
There are other important factors to discuss during this meeting, but answers to those basic questions will get you a long way.
The most important decision is when to tell key individuals in the organization. This list could include minority shareholders, next generation leadership or middle management. A seller often feels a sense of obligation to disclose his intentions to these key people. Most sellers try to run their business with a fair amount of openness and usually err on the side of over disclosure. So when it comes time to discuss possibly selling their firm, they have a hard time keeping it from those they view as “partners.” They feel withholding information is similar to being dishonest—especially to those who helped build the company.
The challenge is that early communication often creates unnecessary unrest.
When working with a client who is selling, we normally advise them to disclose once they have something to really share—perhaps once they have narrowed down the list of buyers or they have executed a letter of intent.
If a seller tells his “partners” prior to a meeting with potential buyers, little good can come from the discussion. The “partners” will assume (and usually incorrectly) they have a say in choosing a buyer. Often you will find a dissenter who tries to leverage the seller to provide them with proceeds beyond which they are entitled. In this case there are likely to be feelings of disloyalty and betrayal from both the seller and his dissenting “partner.”
There is a range of emotions in a transaction. A seller needs to recognize disclosing too early will typically cause more harm than good. To keep your firm’s employees focused on their responsibilities, it is best to wait until there is really something to disclose. It may not feel right, but the decision to delay communications is usually the best one.
May and June Deals
May and June ended the second quarter with 17 deals each, bringing our year-to-date total to 141. While May and June are the lowest monthly totals this year, the total through June actually marks the largest deal count for the first six months of any year on record.
AssuredPartners started the year off strong but did not announce a transaction in either May or June. Yet its deal total of 12 is still top among all buyers. Arthur J. Gallagher quietly completed two deals in both May and June bringing its domestic total to 11. Gallagher made another major international acquisition, announcing the purchase of Canadian insurance brokerage Noraxis with revenue totaling C$125 million (US$117.4 million). Hub International acquired Mississippi-based Fox-Everett, helping to bring its count to nine domestic acquisitions. Marsh & McLennan Agency announced in June the acquisition of North Carolina-based Senn Dunn. That brings its total to eight transactions in 2014 (compared to just three in 2013). Rounding out the top five is USI Holdings (five transactions).
Of the 141 deals, 40 were wholesale transactions. The six-month wholesale total has eclipsed the 2013 annual total of 36 deals.
The wholesaler buyers are a very diverse lot. Eight of the deals were completed by public brokerages, which continue to find new ways to generate revenue by “double dipping” in wholesale distribution channels that work for retail products. Six of the deals were completed by carriers trying to extend the reach of their products.
The remaining deals were mostly completed by private-equity-backed firms (both wholesale and retail) that need to continue to deploy capital and look to wholesale firms where there is less buyer competition than on the retail side.