The life and pensions M&A landscape: What buyers are looking for in your business

The professional services life and pensions market has been an active M&A sector recently, driven by significant consolidation of the industry. The market has historically been extremely fragmented. A lot of owner-managed brokers have been able to develop a strong and loyal customer base and are now an attractive acquisition opportunity for larger consolidators.

The sector has very similar characteristics to the insurance brokerage market. The consolidation thesis correctly assumes that by creating a larger platform, competitive advantages accrue in the form of more favourable commission structures and a centralised overhead function delivering cost synergies.

We outline below the key value drivers for a life and pensions brokerage.

1. Assets Under Management

The level of Assets Under Management (AUM) is the barometer of the size of your book. All other things being equal, it should dictate the level of recurring revenue that you generate. Illustrating a growing AUM profile over an historic period will clearly outline the upward trajectory of your business.

2. Revenue profile

Commissions structures can vary by broker. Some may command a higher upfront (initial) commission while others may seek to maximise the recurring (trail) element of the commission. From a buyer’s perspective, a greater weighting of trail revenue is a value driver, as it underpins the future revenue profile of the business.

Trail revenue as a percentage of AUM is a key metric in assessing the sustainability of the book.

3. Agency agreements

The robustness of your agency agreements will be important when determining value. Ensuring that your terms are clearly documented and implemented adds certainty from a buyer’s perspective.

4. Employees

As with all businesses, the quality and depth of your employee base is critical. If your business is wholly reliant on the service that you (the owner) provide, there is a risk that value is eroded when you sell the business. Buyers will typically seek a retention period and defer an element of the consideration under an earn-out structure to mitigate against any perceived risk.

This risk is significantly mitigated if it can be evidenced that your business has a strong and dependable management base.

5. Maintainable EBITDA

Ultimately a buyer will be focused on the profitability of the business. Being able to demonstrate strong revenue conversion to a maintainable EBITDA level will maximise your value on sale.

6. Management information

In the event that you have agreed terms, the buyer is likely to undertake a due diligence process. Ensuring that you have appropriate levels of management information readily available will help to protect value through the due diligence phase.

If you are interested in selling your brokerage business, running a professional sales process to identify the right strategic buyer will help to ensure an effective and efficient exit.

At Crowe, our corporate finance team has deep experience in helping SME owners through every stage of the business sale process, from initial planning to deal closure and beyond.

If you're considering selling your business, get in touch with a member of our team. Let us help you make your next move the right one.