Allstate Agency Values: Which Books Are The Most (And Least) Desirable?

If you’re not familiar with PPCLOAN, you should get familiar right away. The site features some eye-opening agency data through its Allstate Value Index, which goes back to 2007. Quarterly updates began in 2009 and have become a mainstay for agents wanting to know the benchmarks of how Allstate agencies stack up across all of the 14 designated regions throughout the United States.

In the most recent update from the Third Quarter of 2013, PPCLOAN shows that Allstate agency values have hit a four-year high.

“The simple average of Allstate agencies transitioned in the Third Quarter of 2013 was 2.50, a benchmark that has not been accomplished since the Second Quarter of 2009 when the average multiple was also 2.50 times,” said author and researcher Paul Clarke, the man behind the compilation, adding that “desirability of the outside buyer test program” and continually positive perceptions of owning a larger agency were driving factors.

Of the outside buyer test program, Clarke says, “Buyers are seeing opportunities in this program not only in the form of heightened commission income available, but also in the underlying competitiveness of the product they are selling.”

Clarke continued: “Those books sold with Earned Premium of $1.5 Million or less (hence qualifying for enhanced commission) sold at a multiple of 2.24X – a strong multiple rarely received by the smallest of agencies. Historically, smaller sized agencies have dragged the average multiple down, so the Test Program has been significant in increasing the overall simple average multiple.”

As for the intense lure of the large agency, Clarke added, “Who wouldn’t want to own an Allstate agency with $400,000 in commission income and a profit margin in excess of 50 percent? The economics of these sized agencies makes them attractive to entrepreneurs and the relative scarcity of these agencies on the market has helped to ensure their value remains high,” noting that books over $3 million in Earned Premium “increased from a 2.57 sales multiple in the Second Quarter to 2.68 times in the Third Quarter of 2013.”

Clarke believes that agencies eligible for the outside buyer test program and enhanced commissions are more desirable even if they’re lower in revenue than some.

Explaining, he points to books above $1.5 Million and below $2.0 Million in Earned Premium, stating these “sold for an average multiple of just 2.07 times,” which is actually below the 2.24 multiple paid for agencies with Earned Premium below $1.5 Million. Clarke speculates that the driving factor for this is likely that the $1.5 to $2.0 agencies are not qualifying for the programs.

“What these numbers tell me is that agency buyers see greater opportunity in purchasing a $1,400,000 Earned Premium agency that qualifies for enhanced commissions, over purchasing a $1,700,000 Earned Premium agency that does not qualify for enhanced commissions,” Clarke said. “It is worthy to note that once the Earned Premium of the agency being purchased exceeds $2.0 Million, multiples appear not to be affected by the absence of Enhanced Commissions and are selling at multiples in-line or even above historical levels.”

Here’s the full report from PPCLOAN, along with a few helpful charts to help you visualize the data. http://goo.gl/ZNnSNG

 

In Summary

By compiling and analyzing close to seven years of data, PPCLOAN has been able to put some hard numbers on what the most desirable and least desirable agency values are. If you’re wondering what your agency is worth, this info should give you a pretty solid idea. And if you’re in the Allstate ecosystem, it offers invaluable insight on sizing and revenue that can serve as a guide for taking your office to the next level.

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