Partnering With Investment Bankers (Part 1)

Unless you've been living in a cave, your firm has probably been impacted by the acquisition of one of your largest accounts by Investment Bankers. You know the deal. You get a call from one of your largest accounts and they proudly tell you about how they just sold their firm to a major Investment Banking (or Private Equity) firm. It is a very happy day for everyone involved... except for you!

Unless you've been living in a cave, your firm has probably been impacted by the acquisition of one of your largest accounts by Investment Bankers.  You know the deal.  You get a call from one of your largest accounts and they proudly tell you about how they just sold their firm to a major Investment Banking (or Private Equity) firm.  It is a very happy day for everyone involved... except for you!

Now, that does not need to be the case.  There is hope.  But, it requires that you and your organization take a step back and understand the transaction. Rather than succumb to the hopeless situation of making a typical brokerage presentation, you will need to think like a business person.

Aside from the need to work with a brokerage firm that is nimble enough to place short fuse and geographically diverse acquisitions, here are some things you need to understand:

  1. The Investment Bankers see you as overhead and a frictional cost that sucks up cash flow.  While they understand that insurance is required to protect their investment, that is the extent of their interest.

  2. Your many years of meritorious service will mean nothing in the end.  The Investment Bankers are looking toward the future and will chose to work with the firm who can provide them the best results.

  3. The Investment Banker has one primary mission with the acquired company:  To increase their ROI, EBITDA and Ownership Valuation.

So, if we can all agree on the above, what is the answer?  It is very simple.  Show the Investment Bankers how your efforts have improved the business performance of the acquired organization.  Demonstrate to them in financial terms how this past performance is being carried into the future.  Then show them what percentage of EBITDA and Ownership Valuation can be attributed to your efforts.  Furthermore, give them a financial benchmark of your projected contribution to Key Performance Indicators (KPI's.)

When this happens, it provides the new owners with an overwhelming reason to maintain your relationship and expand upon it with additional new acquisitions.  You are now a firm that provides them with a solid ROI and improved EBITDA on all their investments.

Ok, I know that some of you might be scratching your heads right now and asking, "What does any of this have to do with being a good insurance broker?"  Or you might be saying; "EBITDA, KPI's, ROI and Ownership Valuations?  I never learned that in Insurance Brokerage 101, so, why bother with it now?"

Both are good questions, and here is the answer...  Unless you get with it and learn how your firm creates value as a Business Organization, you will be left in the dust.  There is a big difference between a good insurance brokerage and a great business organization.  The key is in understanding and communicating how your firm impacts the financial results of your client.

Here is the problem with most brokerage firms...  They have been steered as insurance brokerages for decades.  Everything they have developed is aimed at one primary thing... funding and reducing risk.  While many have sophisticated risk control and claims management facilities, they have aimed their results at premiums and claims.  These alone do not attract a sophisticated buyer who requires outcomes.  

Premiums and Claims Data are simply statistics, not financial results.

In our next Briefing we will discuss the specific methods by which to retain your Investment Bank-owned accounts and grow this important segment of your business.  We will provide you with the key information and real life examples of brokers who have successfully utilized these techniques.

In the meantime, please ask yourself this question.  "In the event one of our largest accounts is acquired, can we provide the new buyer with our established business outcomes, or simply statistics?"

If it is simply the statistics of premiums and claims outcomes... you will get fired!

All the best to Consultative Brokers,

Rob Ekern

President/CEO

C.R. Ekern & Company


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