Staged Perpetuation: Setting Up a ‘Takeoff’ toward Retirement

This post is part of a series sponsored by InsurBanc.

Many independent agency owners know that perpetuation is an often-used strategy to transfer agency ownership to an upcoming generation of family, producers or staff.

What they might not know is: This same objective can be reached over time through a “staged” perpetuation, transferring ownership in phases rather than selling it all at once.

A staged perpetuation provides the agency owner a runway to take off to retirement. Staged perpetuations are growing in use in the industry, at least in part because of seller’s remorse — a malady affecting the agency principal who sells their business only to miss it deeply.

A staged perpetuation can prevent seller’s remorse by offering a main benefit: Allowing an agency owner to leave on his or her own terms, over time.

Once an owner chooses a staged perpetuation, he or she continues to work in the business. He or she works alongside the family members or business associates who are buying the agency — while also mentoring the buyer(s) with agency management and ownership.

From the buyer side, a staged perpetuation spreads the agency purchase over years, increasing affordability. The chosen time period of the perpetuation can give space for the new generation of independent agency ownership to start out and start up as owners.

From the seller side, staged perpetuation gives the owner time to impart knowledge and insight about financial management of the agency, production, technology, operations and human resources. Even as their ownership percentage declines over time, the seller’s equity can continue to grow as the agency builds value, giving the seller a smaller piece of a bigger pie.

Who should consider a staged exit? Prime candidates are agency owners who have their eye on retirement but are not quite ready to get out of the business entirely.

Owners using a staged perpetuation can focus their work into the areas they most enjoy, such as producing, working on strategy and vision, or working on operations or technology. Meanwhile, they can pass on responsibility for other areas to the new owners.

To determine if a staged perpetuation might be a fit, the most important first step for an agency owner is to have conversations with those in the agency who are potential candidates for future ownership. One way to do this is to let family, producers and staff know they can “raise their hand” to signal their interest in moving up to the ranks of agency principal.

Since a perpetuation creates a market for the shares of the agency, the more people you open up equity shares to, the bigger the market can become.

If a staged perpetuation is the chosen strategy, financing the transaction may be a key element to consider. Insurance-industry-focused lenders have an inherent understanding of the purpose and particulars of a loan to fund a staged perpetuation.

One example of a staged perpetuation involves two insurance producers who bought a minority ownership in a Main Street agency. The owner didn’t have family involved in the agency, so he identified key people as the next generation of ownership. He sold them about 25% of the firm to start the staged perpetuation process, with a long-term plan for him to sell the remainder and exit the agency. A perpetuation loan made to the two producers financed the purchase of the shares.