2012 marsh, berry & company, inc. – no part of this presentation may be reproduced, published,...
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2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
John M. WeplerPresident
Marsh, Berry & Company, Inc.440-392-6572
PerpetuationWhat is Your Plan?
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Information Services
Benchmarking ServicesPerspectives for High Performance (PHP) Sales Portal – Pipeline / Service TimelineConfidential Employee Morale IndexingPerpetuation PreparednessOperational AssessmentSales Management Benchmark Report
MarshBerry.comPerformance CalculatorsForms & DocumentsPosition DescriptionsDiscussion GroupsResearch StudiesMarket DataOn-Line Value EstimatorPublished Articles
Monthly PublicationsThe MarshBerry Letter
a. Market & Financialb. Agency Compensationc. Agency Operationsd. Surveys
For The Record (Statistical Analysis)
Dealmaker’s Dialogue (M&A Advisory)
Public Speaking EngagementsKeynote / State of the IndustryTopical education
Carrier ServicesDistribution System ManagementField Personnel Training and DevelopmentAgency Management Symposiums
Sales Management Cultural Mapping and AlignmentSales Person Goal SettingSales Portal – Pipeline / Service TimelineAccountability / Compensation DesignProducer and Sales Manager TrainingDifferentiation Design and Execution
Business Planning Strategic Business PlanningExecution / Action Plan ManagementStrategic Options Analysis
Agency ValuationAgency Fair Market ValuationESOP Valuations by Certified AppraisersValuation Assessment
Perpetuation PlansPerpetuation Plan DesignPlan Execution ManagementTransfer Strategies (Stock / Leadership /
Books-of-Business)
Financial ConsultingInternal Financial Controls Compensation ConsultingValue Enhancement PlanningContingent/Supplemental Plan Mgmt.
Operational ConsultingStaff Workload / Comp. ManagementWorkflow and ProceduresE&O Audit, Policies and ProceduresE&O Market Access
RecruitingPosition profile, search, screen, hireCompensation development planTechnical and sales training - year one
Peer Networks
Agency Peak Performance EXchange (APPEX)
Over 115 AgenciesOver $1.1 Billion Revenue
Bank Agency NetworK (BANK)Over 25 BanksOver $1.0 Billion Revenue
Total Agency Sales Culture (TASC) Network
Over 35 AgenciesOver $1.1 Billion RevenueNation’s leading organic growth agenciesEnhanced new business production and
retention strategies
Royal Sun Alliance (RSA) Summit Brokers Improvement Network
Canadian agencies affiliated with Royal & Sun Alliance Insurance Company
Standard Partner ServicesState of the Industry ResearchCEO Peer Exchange / NetworkingSemi-annual ConferencesSemi-annual ConsultationRegimented Benchmarking ServicesMarshBerry.comThe MarshBerry Letter and other Monthly
PublicationsPriority Consulting OpportunitiesExclusive ProgramsDistance Learning Groups (DLGs)
Management Consulting
StrategyAcquisition PlanningDeal Return ModelingStrategic Options AnalysisAlternative Buyer Comparison
PreparationSale Preparation Management Offering Memorandum DevelopmentStrategic Pitch Book DesignCandidate Profile Creation
RepresentationBuy Side Representation
(including Search and Screen)Sell Side RepresentationLetter of Intent / NegotiationCreative Deal Structure Alternatives
AnalyticsAgency Fair Market ValuationMarket Comparables / BenchmarkingAfter-Tax Return Optimization IRR, ROI and EPS Analysis
ExecutionDiagnostic Due DiligenceConfirmatory Due DiligenceIntangible Asset Allocation – GAAP Rep.Fairness OpinionDefinitive Agreement (Best Terms /
Conditions)
Post-Deal ManagementPost-Closing IntegrationGoodwill Impairment TestingPeer to Peer CEO ExchangeEarn-Out Maximization Consultation
M&A Advisory
MarshBerry Solutions
2
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network SummitMerger & Acquisition
Advisory
#1 Insurance Industry M&A Advisory Firm
• MarshBerry is a buy-side and sell-side M&A Advisor
• Closed 29% of total advised deal flow since 1999
• 287 M&A Transactions with the Top 100 Brokers
• 163 Bank Insurance M&A transactions
• 690 total M&A transactions closed
• Ranked #1 by SNL for each of the past 15 years
#1 Insurance Management Consulting Firm
MarshBerry is a consultant to 54 of the Top 100 Brokers and
over 900 of the nation’s leading insurance agencies, brokerage
firms and financial institutions in insurance.
• Valuation • Sales Management
• Perpetuation • Producer Recruiting
• Strategic Planning • Compensation Consulting
Peer ExchangeNetworks
#1 Insurance Industry Peer Networks
MarshBerry facilitates APPEX, BANK, TASC and RSA, which are
CEO peer-to-peer exchange groups committed to driving organic
growth and value.
• 180 insurance agencies and brokerage firms
• $30 B in aggregate premium
• $2.5 B in aggregate revenue
#1 Insurance Industry Information Resource
MarshBerry maintains proprietary benchmark statistics on
insurance agencies and brokerage firms across the United
States and Canada.
• 1,000+ insurance agencies and brokerage firms
• $50 B in aggregate premium
• $4 B in aggregate revenue
InformationServices
MarshBerry Market Position
3
ManagementConsulting
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Spring 2010 TASC Network Summit
4
Perpetuation Defined1. Plan for long-term sustainability
2. Continuous process with no beginning or end
3. A continual series of activities and transactions, not an event
4. Supported by a formal written plan and a buy-sell agreement
5. Plan: “People, Commitments, Value, Cash flow & Funding”
6. Paramount : Maximization of after-tax value for Sellers and Buyers
7. Catastrophic considerations: Death, Disability or Termination
8. Ordinary course of business considerations: Retirement
9. Supported by feasibility analysis updated annually
10. Feasibility Analysis: current/future value, debt capacity and cash flow
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Spring 2010 TASC Network Summit
5
Why Bother?
1. Largest asset in estate
2. Protect value
3. Enhance value (irrespective of internal or external)
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
6
The Basics
1. Cash Flow (Must remain positive) =
Net Income + Non-Cash Expenses – CPLTD
2. Debt Coverage Ratio (Must be greater than 1.0) =
Net Income + Non-Cash Expenses+ Interest ExpenseAnnual Principal and Interest Payments
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
7
The Easy PartThe Structure
1. Not Tax Deductiblea) Stock Redemption
b) Personal Buyout
2. Tax Deductiblea) ESOP
b) Compensation (Deferred Compensation / Consulting Agreements)
3. Freea) Gifting
b) Stock Bonuses
4. Capital Infusiona) Stock Options
b) Private Equity
Detailed options available upon request
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Approximately 77% of Companies
will NOT Perpetuate
No Discipline has been executed to :1. Reverse Perception and Embrace Reality
2. Reinvest In the Staff to offset Aging
3. Relentless focus on Organic Growth
4. Relentless focus to Operate at Pro Forma
5. Discipline to Retain Earnings
6. Relinquish stock gradually
7. Reduce Seller Risk
The Hard Part
8
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1. Continuity of cash flow?
2. Continuity of diversified talent?
3. Continuity of adequate capital?
Without Discipline Will There Be?
Shift Control AND Retain Risk (internal)
VS.
Shift Control AND Shift Risk (external)
Without Continuity Will Owners:
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
10
Will You Be Able to Perpetuate?
Take a Close look in the Mirror . . . .
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
The Problem with Selling Shareholders:
11
1. Not comfortable with the people component of perpetuationa. Have not adequately reinvested over timeb. Shortage of high performers that are also risk takers c. Next generation has not operated at best practices growth and profitability
2. Not comfortable or capable of funding the purchasea. Cannot afford or are not willing to reduce compensation during note paymentb. Cannot afford or are not willing to hold the note and transfer controlc. Need lump sum purchase price versus selling over time
3. Want external value & risk transfer vs. internal value & retention of riska. Not willing to operate at pro forma to enable debt serviceb. Not willing to sell at discount to external valuec. Try to retain control while desiring next generation to accept debt
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
12
1. Have little personal savings and inadequate collateral
2. Not willing to sign note unless profitability supports debt service
3. Not willing to sign and collateralize note without control
4. Not accustomed to operating in a leveraged environment
5. Want sweat equity versus purchase
6. Not willing to accept more responsibility with deferred reward
7. Will not save for perpetuation (spend more than w2)
8. Need to become brought into ownership over time
The Problem with Buying Shareholders:
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Perception vs. Reality
13
1. Next generation deserves ownership due to past performance
2. Seller does not have to take a cut in pay or perks to get fair value
3. Seller can get external price in an internal transaction
4. Seller can keep control until completely bought out
1. Next generation must pay for ownership
2. Seller’s need to transition responsibility and reduce pay to help cash flow debt payments
3. External buyers often will accept deficit cash flow that breaks even on a cumulative basis in 7 years
4. Internal Buyers will not accept leverage and pledge collateral without the ability to make decisions
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Perception vs. Reality
14
1. Perpetuation can occur without generating a significant amount of cash flow
2. Internal perpetuation pays you with your money and not in external sale
3. You can sell at any time for top dollar
1. An agency must operate at its pro forma to cash flow an internal transaction
2. Both use seller money to cash flow the purchase; the difference is risk transfer
3. If the agency is dependent on shareholders, value declines with an increase in shareholder age.
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Spring 2010 TASC Network Summit
15
Execute PPOG
Control the future
Drive value
Willing Unwilling
Able
Unable
Divest
Get Help Divest
Are You Willing and Able?
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Capital Gains Rate Lowest Since the Great Depression (10/29/29)
16
10%
13%
15%
18%
20%
23%
25%
28%
30%
33%
35%
38%
40%
43%
45%
19
23
19
26
19
29
19
32
19
35
19
38
19
41
19
44
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
20
16
Jobs and Growth Tax Relief Reconciliation Act of 20031. Current Capital Gains Rate of 15%2. Rate Cut will Sunset 1/1/13, Revert to 20%3. 3.8% Healthcare Surtax in 2013
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc. 17
Reinvest In the Staff to Offset Aging
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
1. Shift in focus; from hiring event to process
2. Commit to Hire 10% of Prior-Year Staff Annuallya. Replace terminated employees and retired employees
b. Net new hires must keep pace with revenue growth
18
***Revenue per Employee # adjusted for inflation
Revenue Revenue Retirement Net New NNHR Divided Annual New5% Per Staff or Hire by Success Hire as
Year Growth Employee FTE Termination Required Rate (75%) % PY Staff2009 10,500,000 150,000 70 n/a n/a n/a n/a2010 11,025,000 151,500 73 2 5 6 9.1%2011 11,576,250 153,015 76 3 6 8 10.8%2012 12,155,063 154,545 79 2 5 7 8.8%2013 12,762,816 156,091 82 2 5 7 8.7%2014 13,400,956 157,652 85 4 7 10 11.8%2015 14,071,004 159,228 88 3 6 8 10.0%2016 14,774,554 160,820 92 2 5 7 8.3%2017 15,513,282 162,429 96 2 6 8 8.2%2018 16,288,946 164,053 99 3 7 9 9.5%2019 17,103,394 165,693 103 4 8 11 10.7%
Average 3 6 8 9.6%
Budget Staff Reinvestment
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
15.4%
19.6%
23.2%26.3%
15.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
21 - 30 31 - 40 41 - 50 51 - 60 60 +
% o
f Tot
al p
rodu
cers
Age
Support Staff - Average Age Dispersion
Support Staff Over 50 years
41.8%
19
Balance Support and Service Age Dispersion
12.3%
20.2%
28.3% 28.4%
10.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
21 - 30 31 - 40 41 - 50 51 - 60 60 +%
of T
otal
pro
duce
rs
Age
Service Staff - Entire Age Dispersion
Service Staff Over 50 years
39.2%
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
11.6%
20.2%
29.2%25.8%
13.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
21 - 30 31 - 40 41 - 50 51 - 60 60 +
% o
f Tot
al p
rodu
cers
Age
Producer Age Dispersion - Average Agency
13.7%
26.6%
31.3%
20.0%
8.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
21 - 30 31 - 40 41 - 50 51 - 60 60 +
% o
f Tot
al p
rodu
cers
Age
Producer Age Dispersion - High-Growth
Insurance Example: Producer Age Dispersion
Producers Under 40 years
31.8% 40.3%
20
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Who to Hire?
1. Bus in front of a law firm
Can you teach
…Desire to win, ego drive?
…Technical skills?
2. Proven sales experience outside industry
3. Appointment setting while training
4. Partner new sales people with mentors
5. Ability to cut cord
21
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1.9
4.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Average Top 25%
New Business Appointments per Month per Producer
The Ball is Being DroppedNot Enough New Business Appointments
22
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc. 23
Target Producer
1. Qualificationa) Successful sales experience, not industry experience
2. Compensationa) 3-year declining base salary (100k, 66k, 33k) + commission
b) Commission shared with mentor
3. Accountabilitya) Monthly base salary subject to appointment validation
$100,000 first year goal / $7,500 = 13 accounts written
Assume 35% proposal to close
Assume 35% appointment to proposal
~100 appointments, ~ 8 per month
Salary $100,000 / 12 mo = $10,000 / 8 appts per mo =$1,250 per qualified appointment
b) Activity tracking
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Mentor Required 1st Year
No Mentoring1. Small accounts
2. No product knowledge
3. Low quote to close ratio
4. Transactional versus Relationship
5. Low new business
6. Higher failure rate
24
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
The 15-Step Process
1. Attractive Recruiting Brochure Outlining Unique Opportunity
2. Dedicated, Regimented and Continual Search
3. Rigorous Screening and Testing
4. Benchmark Personality Assessments
5. Structured Candidate Interviews
6. Candidate Profile: Prior Sales Experience; No Industry Experience
7. Self Selection Compensation Plan - Appointment-Based Validation System
8. Mentor Assigned, Required and Compensated
9. Mentor Gets Credit Counts Toward Carrot and Stick
10. Technical Training Program (if demonstrate ability to set appointments)
11. Prospecting Training (if demonstrate ability to set appointments)
12. Define Qualified Appointments (# Employees, CEO Present, SIC Code, Class research)
13. Reduction in Month 5 if during Month 4, below Target # of Appointments
14. Wash-Out Rate Accepted, Reload is Accepted Strategy
15. Pipeline Required
Follow the Road to the Casino
25
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The Beacon of Clarity
Producer Reinvestment Assumptions
1. New Sales Person Hire 50% Success Ratio
2. Failed Sales People Terminated Early
Results (Modeling Available Upon Request)
1. IRR of 52% versus acquisition (27.2% with Debt; 18.8% without)
2. Control your Culture, Hire The Next Generation
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Organic GrowthWhy is Growth Important?
1. Culture: Energy and excitement
2. Profit to reinvest in the next generation
3. Profit to pay bonuses and raises
4. Promotion opportunities for staff
5. Ability to hire quality new employees
6. Profit to buy stock from owners (ownership perpetuation)
7. Growth + Profit - Risk = Value
8. Sustainability: Control your future versus letting the future control you
27
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Largest Challenge to Commission Growth?
28
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Farm
erF
armer
HunterHunter Originates new business
Manage existing relationships
Organic GrowthDefine Roles and Restructure to Drive Growth
29
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Spring 2010 TASC Network Summit
57%
68%
50%52%54%56%58%60%62%64%66%68%70%
% Answering "YES"
Do producers have minimum annual new business production goals to retain producer status?
Average High-Growth
57%
68%
50%52%54%56%58%60%62%64%66%68%70%
% Answering "YES"
Do producers have minimum annual new business production goals to retain producer status?
Average High-Growth
Producer AccountabilityCommunicate Expectations and Ramifications
30
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Spring 2010 TASC Network Summit
66%
78%
58%60%62%64%66%68%70%72%74%76%78%80%
% Answering "YES"
Do you enforce negative consequences fornon-performing producers?
Average High-Growth
66%
78%
58%60%62%64%66%68%70%72%74%76%78%80%
% Answering "YES"
Do you enforce negative consequences fornon-performing producers?
Average High-Growth
Producer AccountabilityFollow Through with Incentives and Consequences
31
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AccountabilityThe Carrot: Excess Compensation Potential
Target: 20% PY Revenue
Wholesale Sales ForceSalary 25% 27.5%
30%
Salary $100k $100k $100k $100k
Incentive as % Base 10%-40% 20% 30% 40%
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc. 33
Accountability The Stick: Termination or Transition
Minimum: < of $100,000 or 15% PY Revenue
Sales Force Salary Yr. 1 Yr. 2
Yr. 3
Salary $100k $90k $80k $70k
Incentive as % Base 10%-40% 0% 0% 0%
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc. 34
Square Pegs and Round Holes
Be Prepared to Hear the Following….
……what will be your answer……?
1. The reason I came into this industry was to build a block of clients at an early age so that I could slow down later in life and just manage a renewal book.
2. This is too cold hearted of a culture for me. I have been here 20 years. I should not be held accountable to new business production.
3. There is another company in this industry that would love to have me on staff. They pay higher compensation and all I need to do is maintain my book of business.
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Activity Management
Does your organization maintain producer accountability & tracking systems (i.e. relative to number of calls, appointments, submissions,
proposals, accounts closed & new revenue)?
35
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Tangible Net Worth Ratio (TNW):
Total Stockholders Equity less Intangible AssetsAnnual Net Revenue
Tangible Net Worth
7.9% of Revenue
Net Fixed Assets
6.7% of Revenue
Notes Receivable Shareholders
2.8% of Revenue
Liquid Tangible Net Worth
(1.6%) of Revenue
Capital Position*
TNW Target for Perpetuation = 25%
Discipline To Retain Earnings
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Relinquish Stock Gradually
1. Buy-Sell Agreementa. Mandatory retirement age
b. Agency call provision at 55 years of age
c. Debt retirement completion by age 65
d. Seller financing on 7-10 year note
2. Transfer Goala. Typical Weighted Average Owner Age (WAOA) is 54
b. Agencies that perpetuate maintain WAOA at or below 46
c. 10% of agency stock always in transition
d. Largest shareholder at maximum of 51%
37
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Spring 2010 TASC Network Summit
Relinquish Stock Gradually
Largest Largest Largest Largest
Ownership Ownership Ownership Ownership
Valuation Assumptions 90% 75% 65% 51%
Agency Revenue 3,000 3,000 3,000 3,000
Agency Pre-Tax Profit (20%) 600 600 600 600
Multiply: Profit Multiple 6 6 6 6
Book of Business Value 3,600 3,600 3,600 3,600
Plus: Tangible Net Worth 300 300 300 300
Agency Value 3,900 3,900 3,900 3,900
Multiply: Stock % Buyout 90% 75% 65% 51%
Stock Transfer 3,510 2,925 2,553 1,989
38
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Spring 2010 TASC Network Summit
Relinquish Stock Gradually
Pre-Tax Profit (10% Growth) 660 660 660 660
Less: Yr. 1 Interest* 211 176 153 119
Taxable Income 449 485 507 541
Tax (40% Combined Rate) 180 194 203 216
Pre-Tax Profit (10% Growth) 660 660 660 660
Less: Tax (180) (194) (203) (216)
Less: Interest (211) (176) (153) (119)
Less: Principal (418) (348) (304) (237)
First Year Cash Flow (149) (58) 0 87
* Seller financed 7 year note at 6%, no down payment
Largest Largest Largest LargestOwnership Ownership Ownership Ownership
Valuation Assumptions 90% 75% 65% 51%
39
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Spring 2010 TASC Network Summit
40
Ideal Age for Perpetuation Candidates
0%
20%
40%
60%
80%
100% 100%
80%
60%
40%
20%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62
Owner Age
Stock Purchase, Hold, Sale
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Spring 2010 TASC Network Summit
41
Cash Outflow / Inflow for Perpetuation Candidates
-$5,000,000
-$4,000,000
-$3,000,000
-$2,000,000
-$1,000,000
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72
Owner Age
Debt Accumulation / Debt Service
Stock Sale / Stock Sale Receipts
Unencumbered Distributions
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Spring 2010 TASC Network Summit
Do producers have the opportunity to own agency / broker stock?
36%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
% Answering "YES"
Average High-Growth
Retaining and Rewarding Talent
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2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Gradual Purchase1. Test willingness to accept perpetuation debt
2. Increase sales people and spouse comfort with managing perpetuation debt
3. Teach sales people to keep lifestyle costs in balance
4. Performance review tool to shape leadership characteristics
5. Wealth creation versus personal income discussion
6. Drive value by enhancing new business from new and current sales people
7. Increase attractiveness of agency to external and internal buyers
8. Accretive to the value of existing shareholders
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Train Them for Battle EarlyUnencumbered
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Outline Personality Traits Required for Ownership
Objective Criteria1. 3+ years experience in industry
2. 3+ years experience with agency
3. Individually develop revenue of $1,000,000
4. “New New” business of 15% of prior-year revenue during the year
5. Attainment of cross-referral goals during the prior year
6. At least one professional industry designation
7. Involved in at least two community organizations
8. Signed agreement with non-solicitation language
9. Satisfy employee survey–perception of leadership/management skills
10. Achieve target for minimal aged receivables during the year
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2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
Subjective Criteria1. Ability to communicate with others
2. Skill – new business, account handling, management, leadership
3. Committed to the future of the industry
4. Self-starter regularly demonstrating initiative
5. Personal confidence
6. Ability to delegate
7. Opinion of agency principals
8. Positive attitude
9. Demonstrated willingness to mentor new sales people
10. Demonstrates diligence and integrity
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Outline Personality Traits Required for Ownership
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
The “It is Yours To Lose” Discussion
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1. Promise me that you will not sell
2. I am here because I want to work for an independent company. These changes make me uncomfortable. If I wanted to be treated this way, I would just work for a public company. Why do you constantly change the rules?
3. I will not…• use pipeline• accept a minimum goal of $100k• accept a moderate compensation • Paying for my own car/country club
1. Prove to me you are a good credit risk and I maybe I won’t. Selling is the default option unless you prove you are worthy of perpetuating to.
2. If we can’t grow profitably, I won’t have faith in the debt capacity of the company, will not hold the note and will sell. Then, there will be real changes
3. You are not a victim. Changes will enable the business to grow profitability so that it can perpetuate.
Perpetuation requires growth and profit sufficient for 1) the next generation to be able to take risk and 2) the current owners to agree to hold the note
Reduce Seller Risk
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.
Spring 2010 TASC Network Summit
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Execute PPOG
Control the future
Drive value
Willing Unwilling
Able
Unable
Divest
Get Help Divest
Are You Willing and Able?
2012 Marsh, Berry & Company, Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Company, Inc.