The fourth episode of a five-part series on value maximization for delegated authority and wholesale broker firms. Understanding what drives value is essential, whether a firm wants to stay independent or sell externally. The value of a firm is influenced by many factors. However, there are typically a select few that will most significantly influence a firm’s value. This episode dives into the importance of understanding the potential implications of business concentrations on cash flows. By adding depth and options around potential key business risks a firm may maximize valuation by minimizing exposure to concentrations.
To The Point: A MarshBerry Video Series
Value Maximization Series: Business Concentrations
December 5, 2024
Video Transcription
Hello, I’m George Bucur, managing director and co-head of MarshBerry specialty practice. Serving specialty distributors such as MGAs (managing general agent), MGUs (managing general underwriter), wholesale brokers and cover holders, we’re here to bring you part four of our five-part series around valuation and valuation maximization.
Today, we focus on business concentrations. A bit of a double-edged sword in some ways, the delegated authority segment rises out of concentration. It’s a firm or an individual getting very deep into a very specific risk, coverage, etc. However, with that concentration and with that differentiation comes the downside potential risk, at least from a valuation perspective when it relates to concentrations of your business. Whether it’s with one underwriter who knows the business very well, is a key man or person within your organization. Whether it’s a select few distribution partners that you need to distribute your product through, or when it comes to your carriers, the markets being the lifeblood of any MGA or delegated authority organization. Having one or few markets that you can access, again, represents a concentration risk because what happens if that carrier comes to you and says unfortunately for reasons that are underwriting related or just at the corporate level, we’re no longer going to support your program. That’s when it gets scary as an MGA, with carriers being the lifeblood of an organization. Those concentrations all have potential significant adverse implications to the cash flows. And as we’ve mentioned when it comes to valuation, the biggest supporter of valuation are those cash flows. So the more diversified and differentiated an organization can be, the more it speaks to higher valuation. Having the options available should adversity impact your organization and be able to adjust to alternative, represents value; it represents infrastructure, and it represents more secure future cash flows.
If you have questions around how the concentrations of your business may be perceived in the marketplace or what you can do to minimize them, we encourage you to reach out. Until next time, be well.
MarshBerry is a global leader in investment banking and consulting services, specializing in the insurance brokerage and wealth management sectors. If your firm seeks expert advisory guidance to refine your business strategies, drive sustainable growth, or facilitate a sale, MarshBerry is the ideal partner to support you in making these critical business decisions. Collaborating with a trusted advisor who deeply understands your business and the industry can help you maximize value at every stage of ownership.
