What is Your Plan?
What is Your Plan?
Considerations When Wanting to Grow your Agency Four Times its Size in Ten Years
Who We Are
1. A national firm with over 1,000 clients in 50 states. 2. Founded in 1981, MarshBerry provides strategic consulting services and M&A Advisory within the insurance vertical. 3. At our core, MarshBerry has one primary objective: Helping our clients learn, improve and realize maximum value. Offices 1. Ohio (Corporate Headquarters) 2. California 3. Michigan 4. New York 5. Pennsylvania 6. Texas Clientele 1. Insurance Agencies 2. Credit Unions & Banks 3. Insurance Companies 4. Wholesalers 5. Program Managers and Managing General Agencies 6. Third Party Administrators Firm 1. Founded in 1981 2. Privately-held 3. 17 shareholders 4. Perpetuated ownership
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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MarshBerry Consulting Market Presence
+ 225
+ 12,000 AGGREGATE HOURS OF STRUCTURED EXCHANGE2
365
NUMBER OF METRICS IN PHP3
+ 10
+ 2,800
COMMERCIAL & BENEFITS PRODUCER HIRES SINCE 2007
VALUATIONS COMPLETED1
MORE THAN
135 16,000 HOURS PER YEAR SPENT MEETING WITH CLIENTS
PEER EXCHANGE AGENCY NETWORK PARTNERS
>$1.9B
+ 1,000 FIRMS PROVIDING DATA FOR BENCHMARKING SERVICES4
CERTIFIED VALUATION ANALYSTS ON STAFF IN AGGREGATE REVENUE IN PEER EXCHANGE AGENCY NETWORK PARTNERS
OVER
70
ARTICLES WRITTEN PER YEAR5
1. By MarshBerry Valuation Teams Since It’s Inception 2. Based on number of hours in 2014 facilitators and relationship managers spent in pre-meeting preparation, during Peer Exchange Network meetings, and post-meeting follow-up and consulting engagements. 3. According to 2014 MarshBerry data; PHP: Perspectives for High Performance 4. There may be some duplication in the number of firms counted as certain firms subscribe to and/or provide data for multiple benchmarking services. 5. Includes 3rd party and proprietary publications, as tracked by MarshBerry.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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2014 MarshBerry M&A Market Presence
479 TOTAL #1 RANKING BY SNL FINANCIAL FOR EACH OF THE PAST 16 YEARS
30%
OF TOTAL ADVISED DEAL FLOW CLOSED SINCE 1999 AS TRACKED BY SNL FINANCIAL
M&A TRANSACTIONS CLOSED SINCE 1999c
$1.8B IN ADVISED TRANSACTION VALUE SINCE 2012a OVER
175 BANK INSURANCE M&A TRANSACTIONS SINCE 1997
235 DIAGNOSTIC AND CONFIRMATORY DUE DILIGENCE PROJECTS OVER LAST TEN YEARS
COMPLETED MORE THAN
OVER M&A transactions since 1995 with the
250
100 largest brokers of U.S. business as identified by Business Insurance
This data displays a snapshot at a particular point in time of the number of deals as reported by SNL Financial. It has not been updated to reflect subsequent changes, if any.
a Based upon maximum transaction price; MarshBerry closed deals through 12/31/14, excludes deals where MarshBerry represented both parties. b Completed transactions in the United States for 2014 as reported by SNL Financial, January 26, 2015. c These totals include certain transactions completed by Marsh, Berry & Company, Inc. professionals while employed at another firm, whereby substantially all of the assets were acquired by Marsh, Berry & Company, Inc. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
4
2015 SNL Financial Rankings
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
5
All Eyes Will Be On You
Past performance is not necessarily indicative of future results. Individual results and experience may vary. Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Many of Our Clients
•
The decision to sell is like a light switch, not a dimmer switch.
•
It seems like the owners of every agency that sold today were promoting that they will never sell yesterday.
•
It seems like every agency owner in America will never sell until the day they all decide to sell.
•
The Crime: Most agency owners inevitably don’t get what they want and even worse, they don’t see it coming.
Past performance is not necessarily indicative of future results. Individual results and experience may vary. Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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It is Worth the Effort… Find a Better Investment Hypothetical Independent *
EBITDA Less Tax After-Tax
25% 11% 14%
After-Tax Divide: Revenue Multiple (Example 8 x EBITDA) Earnings Yield
14% 2.0 7%
Earnings Yield Plus: Organic Growth Total Return on Ownership
7% 7% 14%
*Hypothetical example. Figures are estimates for illustration purposes and do not guarantee value or performance. This is not intended to represent any specific client experience. MarshBerry Capital, Inc. does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Symptom vs. The Illness
Types of Purchase Price •
Base Purchase Price: The amount of proceeds paid at closing, including any escrow amounts for indemnification items, (i.e., Paid at Close) plus amount buyer may initially hold back, but which are paid as long as the seller’s performance does not materially decline, or which may be paid at closing but is subject to a potential adjustment (i.e., Live Out).
•
Realistic Earn Out: The likely purchase price to be achieved in the future based on a number of factors including seller actual or expected performance, buyer and seller realistic discussion of earn out metrics, etc.
•
Maximum Earn Out: The additional earn out above the Realistic Earn Out, that if achieved, would generate the maximum possible earn out payment.
Source: MarshBerry Experience 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
Types of Sellers •
•
•
Platform: Relatively large, high-performing agency to serve as a hub or foundational piece of the insurance distribution platform for all or some portion of the acquirer’s footprint. High level transaction for a buyer, typically due to new geography niche, expertise, size, talent, etc. Stand Alone: Typically a larger agency, at least $3 to $5 million in revenue, strong management and leadership team to expand the insurance distribution platform for all or some portion of the acquirer’s footprint. Roll In: Typically a smaller agency that will be consolidated into one of the acquirer’s existing operations, but expanding the insurance distribution capability within the acquirer’s footprint.
Source: MarshBerry Experience 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
Agency Value Comparables All Buyers - Multiple of EBITDA
See Footnotes 1, 3, 4, 5, 6, 7, 8, 9 Source: MarshBerry proprietary database. Data compiled from transactions in which we were directly involved, those from which we have detailed information, and transactions in the public record. Past performance is not necessarily indicative of future results. 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Looking Back 36 Months
•
23 of the top 100 brokers
•
$7.2 B in Revenue
•
22.5% of total revenue of the top 100 brokers
Source: MarshBerry Opinion and Experience. Individual results may vary. 100 Largest Brokers of U.S. Business Per Business Insurance Magazine, July 20, 2015 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Meow to Roar 1. 2007 = $4B •
USI Insurance Services privatized by Goldman Sachs Group, Inc.
•
HUB International, Inc. privatized by Apax Partners and Morgan Stanley
•
Alliant recapitalization with Blackstone
2. 2012 - 2013 = $8.5B Return with Debt Leverage Source: SNL Financial, Insurance Journal, and other publicly available sources 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Total Announced U.S. Transactions
All transactions in this presentation are announced deals involving public company acquirers, banks, and private equity groups as well as private company acquirers. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15%-30% of all transactions are actually made public. Past performance is not necessarily indicative of future results. Source: SNL Financial, Insurance Journal, and other publicly available sources
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Private Equity Backed Buyers Announced U.S. Transactions
1
All transactions in this presentation are announced deals completed by agencies/brokers with external sources of funding. Deals completed prior to private equity investment are not included. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15%-30% of all transactions are actually made public. Past performance is not necessarily indicative of future results. Source: SNL Financial, Insurance Journal, and other publicly available sources
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Private Equity Capital Overhang: Dry Powder That Could Potentially Be Deployed To Insurance Broker Space
$30.0 B
$19.4 B
$17.5 B
$12.4 B $7.0 B $3.2 B
$4.2 B $0.8 B
$1.8 B
Data as of 9/11/15. P.E. = Private Equity (96.2) Capital Overhang or Dry Powder: the current amount of capital available to private equity investors. Source: PitchBook Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230
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Why Are So Many Attracted to Private Equity?
1. Retain equity and capitalize on today’s high valuation multiples 2. Help secure capital for acquisition growth 3. Participate in the upside created through debt leverage 4. A second bite of the apple in a secondary transaction 5. From a Whisper to a Roar, The Guy Next Door, Really? 6. Uber Wealth Creation: 20% exceeds 80% (rinse /repeat, rinse / repeat) 7. Variety
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Variety
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Centralized structure / strategy / reporting Public announcement of the deal Specialty Your team will run a practice or region Select members will be on executive team Local agency name will be retained Retain Equity in your agency Retain a small amount of equity Post closing, dividends are paid Buyer will provide access to capital for M&A Subsequent acquisitions help Earn Out Guaranteed employment agreement One standard Producer Compensation Plan One automation system Consolidate carrier contracts Overhead allocation Have recently recapitalized Start up Bullish on employee benefits Encourage and support nepotism
Decentralized structure / strategy / reporting Deal kept quiet from the public Generalist You will be absorbed into another firm Key members will not have leadership role Agency name will change immediately Acquire equity in the buyer Retain a large amount of equity Dividends are not paid but retained Buyer will handle all M&A Buyer retains the benefit of the acquisition Key people will become employee at will Keep your producer compensation plan Every automation system Contracts managed locally No home office costs Will recapitalize soon Over $1 billion in revenue Don’t understand employee benefits Are ambivalent about nepotism
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Why the Interest by Private Equity?
1. Recurring revenue industry 2. Cash flow versus capital intensive business 3. Private equity buyers enjoy easy access to credit at low cost 4. Private equity buyers are flush with capital given global search for yield 5. Overabundance of capital requires deployment in large chunks 6. Highly fragmented market (runway and parachute ensuring exit) 7. The dirty little secret
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Dirty Little Secret
Source: MarshBerry Opinion and Experience. Marsh, Berry & Co., Inc. and MarshBerry Capital, Inc. do not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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No Tax, Significant Cash Flow
1. PEG Parent Valuation
5. Cash Flow 300,000,000 30.00% 90,000,000 10.00 900,000,000
Revenue EBITDA Margin EBITDA $ EBITDA Multiple Book of Business Value
EBITDA $ Less: Amortization Less: Interest Taxable Income Plus: Amortization Cash Flow 900,000,000 Cash Flow as Multiple of EBITDA
2. Amortization
Value Number of Years Amortization Expense
15 6. Agency Value (Including Earn Out) 60,000,000 Revenue
3. Leverage
Debt: 7 x EBITDA Equity Value 4. Interest Expense
Debt Interest Rate Interest Expense
70% 30% 100%
90,000,000 (60,000,000) (33,000,000) (3,000,000) 60,000,000 57,000,000 0.63
EBITDA Margin 630,000,000 EBITDA $ 270,000,000 EBITDA Multiple (Including E.O.) 900,000,000 Book of Business Value
5,000,000 30.00% 1,500,000 10.00 15,000,000
7. Cash versus Rolled Equity 630,000,000 Cash (Incl. E.O.) 70% 5.25% Rolled Equity 30% 33,000,000 Total
10,500,000 4,500,000 15,000,000
EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization; E.O.: Earn Out PEG: Private Equity Group The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The De-levering Impact of Cash Flow
11 10 9 De-Levered EBITDA Multiple At Zero Growth
8 7 6 5 4 3 2 0
1
2
3
4
5
6
7
8
9
10
11
Year EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization; E.O.: Earn Out PEG: Private Equity Group The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity
8. Return % on Invested Equity Organic Growth of Parent Scenarios Book of Business Value of Parent
2.0% 900,000,000
4.0% 900,000,000
6.4% 900,000,000
Book of Business Value Growth Less: Capital Gains, Est at 20% Book of Bus. Value growth A.T.
18,000,000 (3,600,000) 14,400,000
36,000,000 (7,200,000) 28,800,000
57,600,000 (11,520,000) 46,080,000
Book of Bus. Value growth A.T. Plus: Cash Flow Return to Owners Divide: Invested Equity Return on Invested Equity
14,400,000 57,000,000 71,400,000 270,000,000 26.4%
28,800,000 57,000,000 85,800,000 270,000,000 31.8%
46,080,000 57,000,000 103,080,000 270,000,000 38.2%
The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. A.T.: After-Tax 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity – Event One 9. Return $ on Invested Equity - Event One Organic Growth of Parent Scenarios Return on Invested Equity
2.0% 26.4%
Rolled Equity Year One Year Two Year Three Year Four Year Five
4.0% 31.8%
6.4% 38.2%
1.0 1.3 1.6 2.0 2.6 3.2
1.0 1.3 1.7 2.3 3.0 4.0
1.0 1.4 1.9 2.6 3.6 5.0
10,500,000 4,500,000 15,000,000
10,500,000 4,500,000 15,000,000
10,500,000 4,500,000 15,000,000
Agency Value Post-Event One Appreciation Rolled Equity Year One Five Years Later Value of Rolled Equity in Fifth Year
4,500,000 X 3.2 14,400,000
4,500,000 X 4.0 18,000,000
4,500,000 X 5.0 22,500,000
Agency Value Post-Event One Appreciation Cash at Closing Event One Value of Rolled Equity in Fifth Year Total Value Fifth Year Including Cash
10,500,000 14,400,000 24,900,000
10,500,000 18,000,000 28,500,000
10,500,000 22,500,000 33,000,000
16.6 5.0
19.0 5.7
22.0 6.6
Agency Value Pre-Event One Appreciation Cash at Closing Event One Rolled Equity Year One Book of Business Value
Multiple of EBITDA Multiple of Revenue
70% 30%
10.0 3.0
Excluding Acquisition The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity – Event Two 10. Return $ on Invested Equity - Event Two Organic Growth of Parent Scenarios Multiple of Revenue
2.0% 26.4%
Agency Value Post-Event One Appreciation Cash at Closing Event One Value of Rolled Equity in Fifth Year Total Value Fifth Year Including Cash
4.0% 31.8%
6.4% 38.2%
10,500,000 14,400,000 24,900,000
10,500,000 18,000,000 28,500,000
10,500,000 22,500,000 33,000,000
10,080,000 4,320,000 14,400,000
12,600,000 5,400,000 18,000,000
15,750,000 6,750,000 22,500,000
Agency Value Post-Event Two Appreciation Rolled Equity Year Five Five Years Later Value of Rolled Equity in Tenth Year
4,320,000 X 3.2 13,824,000
5,400,000 X 4.0 21,600,000
6,750,000 X 5.0 33,750,000
Cash at Closing Event One Cash at Closing Event Two Value of Rolled Equity in Tenth Year Total Value Tenth Year Including Cash
10,500,000 10,080,000 13,824,000 34,404,000
10,500,000 12,600,000 21,600,000 44,700,000
10,500,000 15,750,000 33,750,000 60,000,000
22.9 6.9 2.3
29.8 8.9 3.0
40.0 12.0 4.0
Agency Value Pre-Event Two Appreciation Cash at Closing Event Two Rolled Equity Year Five Value of Rolled Equity in Fifth Year
Multiple of EBITDA Multiple of Revenue Multiple of Closing Value
70% 30%
The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Valuation Headwinds
Interest Rates
Leverage Ratios
Rate Environment
Economic Growth
Presidential Election
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Growth Rate to Stay Even
11.00
30,000
10.00
25,000
9.00
20,000
8.00
15,000
7.00
10,000
6.00
5,000
5.00
0 2015 Multiple Including E.O
After‐Tax Value
Multiple Inlcuding E.O.
Organic Growth BEP: 10%
2019 After‐Tax Value
Assumes a $10M Revenue Agency Marsh, Berry & Co., Inc. and MarshBerry Capital, Inc. do not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. E.O.: Earn out; BEP: Break Even Point 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Illness
Historical Organic Growth Rates
23% 20%
20.7% 17.9%
16.4%
18% 15% 13%
10.8%
10.5%
11.4%
10% 8% 5%
15.6%
14.8%
6.0%
6.3%
4.1%
3%
7.5%
7.7%
6.4%
2.9% 0.4%
0.1%
0% -3% -3.8%
-5% 2007
2008
2009
2010
All Agency Average
2011
2012
2013
2014
2015*
Best 25%
* Data as of June 30, 2015. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”), MarshBerry Market and Financial Outlook Survey, 2014. “Average” is the average of all agencies in the database, while “Best 25%” is the best 25% of the average performance. Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Allowing External Factors to Control Your Sustainability 20.00%
15.00%
10.00%
6.3%
5.00% 4.1% 0.4%
0.1%
0.00%
7.5%
7.7%
2013
2014
6.4%
2.9%
-3.8% -5.00% 2007
2008
2009
2010
2011
2012
2015*
Total Commissions & Fees Organic Growth
*Data through June 30, 2015. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
31
Weighted Average Owner Age 55.0
54.8
Weighted Average Owner Age
54.5
54.1
54.0 53.6 53.5 53.0
52.9
52.9
2008
2009
53.5
53.5
2012
2013
54.0
52.5 52.1 52.0 51.5 51.0 50.5 2007
2010
2011
2014
2015*
*Through 6/30/2015. Past performance is not necessarily indicative of future results. Source: The data is from a proprietary financial management system of Marsh, Berry & Co., Inc., Perspectives for High Performance (“PHP”). Agencies subscribe to the PHP reports and data from each subscriber is updated every quarter. The system calculates critical financial and productivity ratios and compares these ratios to the Average Performance in the group. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Percent Ownership by Generation
MarshBerry
All Agency Average*
1% 1% 10% 32% 30%
59%
67%
Baby Boomers (1946 - 1964)
Generation X (1965 - 1980)
Millennial (Generation Y) (1981 - 2000)
Institution
Past performance is not necessarily indicative of future results. * Average of all agencies in the MarshBerry PHP database. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Historical All Agency EBITDA as a Percent of Net Revenue 35% 30%
29.7%
28.1%
26.6%
26.5%
26.4%
27.2% 27.8%
26.3%
26.4%
25% 20% 15%
14.5%
13.6%
13.7%
13.4%
14.6%
15.4%
16.4%
15.8%
16.4%
10% 5% 0% 2007
2008
2009
2010
2011
All Agency Average
2012
2013
2014
2015*
Best 25%
* Data as of June 30, 2015. EBITDA: Earnings Before Interest Taxes Depreciation and Amortization. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). “Average” is the average of all agencies in the PHP database, while “Best 25%” is the best 25% of the average performance. Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Valuation Delta Hypothetical Independent
Example Internal*
Revenue
Example Sale**
Expense Cuts Resulting from Proceeds 1. SBU threshold $5,000 - $10,000
100.0%
100.0%
Compensation
65.0%
55.0%
3. AE Terminations / Book Movement
Other Expenses
18.6%
15.0%
4. Retirements, Control = Cash vs. Note
83.6%
70.0%
EBITDA
16.4%
30.0%
SBU – Small Business Unit; AE = Account Executive EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
EBITDA
16.4%
30.0%
*Data from MarshBerry proprietary benchmarking database – Perspectives for High Performance.
Base EBITDA Multiple
6.00
9.00
**Hypothetical example. Figures are estimates for illustration purposes and do not guarantee value or performance
Revenue Multiple
0.98
2.70
Source: MarshBerry Opinion & Experience
Comp. Buy-Down
(0)
(.10)
Revenue Multiple
0.98
2.60
0
1.00
0.98
3.60
Total Expenses
Earn-Out Revenue Multiple Revenue Multiple
2. Renewal Rate 20% - 25%
5. Concentrated Leadership
Hypothetical example. This is not intended to represent any specific client experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
35
The Revelation
1. If you run your business as if its for sale, you likely won’t need to sell 2. Eliminate the valuation delta and an internal sale may not be 1/3 3. The changes are the same…
It is not if, but when.
Source: MarshBerry Opinion and Experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
36
Considerations When Wanting to Grow Your Agency Four Times its Size in Ten Years
Goal Required of Every CEO: What is Your Plan to Double in Value? 72 Rule of 72:
Growth Rate
Rule of 72 72 72 72 72 72 72
=
Growth Rate 2.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Years to Double in Value
Years To Double 36 14 7 5 4 3
The above example is for illustrative purposes only. Individual results may vary. Source: Investopedia. 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
38
Four Times Your Size in Ten Years
1. Organizational a. Corporate infrastructure: CFO, COO, CMO, CSO, CIO b. KPIs integrated into accountability reporting, bonus and merit raise system c. External leadership development education d. Structured, process driven recruiting and retention infrastructure e. Onboarding process, structured training through internal university 2. Internal and External Communication Strategy a. Internal culture identification, design and reinforcement strategy b. Brand refresh plan, consistency and relevancy driven by CMO c. 2020 Strategic Blueprinting (Strategies by Unit, Future Organizational Chart) d. Publically distributed annual report 3. Governance a. Outside board of advisors or directors b. Ownership separate from employment c. Mandatory age to sell stock d. Financial Audit e. Use of balance sheet leverage and / or outside equity investment Source: MarshBerry Opinion & Experience. KPI: Key Performance Indicators 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
39
39
Four Times Your Size in Ten Years 4. Sales Management a. Consistent Sales Management CSO Structure, not under Regional Presidents b. Non-optional behavior consistently managed through policy c. Budget validation to 20% of prior-year commission d. Industry niche / Affinity Group organizational structure e. Differentiation through Value Creation; programs, alternative risk, captives 5. Retention a. Proprietary benchmarking within niches b. Intellectual capital within niches distributed by white papers and seminars c. Service Timeline and Stewardship non-optional on all accounts above select d. Internal audit supported by technology: Claims, Workflow, Timelines, E&O b. Regional centralization of service (PL, Small CL, Small EB) 6. Acquisition a. Structured acquisition strategy b. Geographic expansion strategy (domestic and international) c. Dedicated internal bankers and due diligence team d. Deal pipeline management Source: MarshBerry Opinion & Experience. E&O: Errors & Omissions; PL: Personal Lines; CL: Commercial Lines; EB: Employee Benefits 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
40
40
Where is Your Blueprint?
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
41
All Employee Planning by Unit 2020 Corporate Goal:
15% Annual Organic Growth Rate Double in Five Years Three Objectives by Unit to Reach Corporate Goal For Example:
Each Niche, Line, Practice
Niche: 1. Energy 2. Life Sciences 3. Construction 4. Equine 5. Public Entity 6. High Net Worth PL
Each Niche, Line, Practice
Lines 1. General CL 2. Small CL 3. PL
Each Niche, Line, Practice
Practice Groups 1. Loss Control 2. Claims 3. Safety
Finance HR
Marketing
IT
Impediments to Reaching Objectives Finance HR
Marketing
IT
Strategies and Resources Required to Overcome Impediments Finance HR
Marketing
IT
Action Plan through 2020: Deadlines and individuals responsible Each Niche, Line, Practice
Finance HR
Marketing
IT
Example is for illustrative purposes only. Individual results may vary. Source: MarshBerry Opinion & Experience.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
42
Q&A
Definitions
1.
Multiples calculated based on deals closed in 2014.
2.
Quartiles are determined based on the realistic purchase price as a multiple of EBITDA.
3.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
4.
Base Purchase Price: The amount of proceeds paid at closing, including any escrow amounts for indemnification items, (i.e., Paid at Close) plus amounts that the buyer may initially hold back, but which are paid as long as the sellers performance does not materially decline, or which may be paid at closing but are subject to a potential adjustment (i.e., Live Out).
5.
Realistic Earn Out: The likely earn out to be achieved in the future based on a number of factors including actual seller performance, buyer and seller realistic discussion of earn out metrics, etc.
6.
Maximum Earn Out: The additional earn out above the realistic level, that if achieved, would generate the maximum possible earn out payment.
7.
Platform: High level transaction for a buyer, typically due to new geography niche, expertise, size, talent, etc.
8.
Stand Alone: The operation will continue to operate out of a separate location.
9.
Roll In: The operation will be combined with another location.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230
44
The information contained herein is for information purposes only. It is not intended as, and does not constitute, an offer or solicitation for the purchase or sale of any financial instrument. Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation, and may not be updated or otherwise revised to reflect information that subsequently becomes available, or changes occurring after the date hereof. MarshBerry Capital, Inc. makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Past performance is not necessarily indicative of future results. Certain information contained herein constitutes forward-looking statements which can be identified by the use of terms such as “may,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” (or the negatives thereof) or other variations thereof. Due to various uncertainties and actual events, including those discussed herein and in other documents, actual results or performance may differ materially from those reflected or contemplated in such forward-looking statements. As a result, individuals should not rely on such forward-looking statements in making their financial decisions. We have no duty to update or amend such forward-looking statements. An investment in any vehicle discussed herein has not been recommended or approved by any U.S. Federal or state or any non-U.S. regulatory authority. Furthermore, the foregoing authorities have not passed upon the accuracy or determined the adequacy of this presentation. Any representation to the contrary is a criminal offense. MarshBerry Capital, Inc. does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. Circular 230: Any tax advice or communication contained within this document was not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed. Securities offered through MarshBerry Capital, Inc., Member FINRA, SIPC, and an affiliate of Marsh, Berry & Co., Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122, (440) 354-3230
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
45
Considerations When Wanting to Grow your Agency Four Times its Size in Ten Years
Who We Are
1. A national firm with over 1,000 clients in 50 states. 2. Founded in 1981, MarshBerry provides strategic consulting services and M&A Advisory within the insurance vertical. 3. At our core, MarshBerry has one primary objective: Helping our clients learn, improve and realize maximum value. Offices 1. Ohio (Corporate Headquarters) 2. California 3. Michigan 4. New York 5. Pennsylvania 6. Texas Clientele 1. Insurance Agencies 2. Credit Unions & Banks 3. Insurance Companies 4. Wholesalers 5. Program Managers and Managing General Agencies 6. Third Party Administrators Firm 1. Founded in 1981 2. Privately-held 3. 17 shareholders 4. Perpetuated ownership
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
2
MarshBerry Consulting Market Presence
+ 225
+ 12,000 AGGREGATE HOURS OF STRUCTURED EXCHANGE2
365
NUMBER OF METRICS IN PHP3
+ 10
+ 2,800
COMMERCIAL & BENEFITS PRODUCER HIRES SINCE 2007
VALUATIONS COMPLETED1
MORE THAN
135 16,000 HOURS PER YEAR SPENT MEETING WITH CLIENTS
PEER EXCHANGE AGENCY NETWORK PARTNERS
>$1.9B
+ 1,000 FIRMS PROVIDING DATA FOR BENCHMARKING SERVICES4
CERTIFIED VALUATION ANALYSTS ON STAFF IN AGGREGATE REVENUE IN PEER EXCHANGE AGENCY NETWORK PARTNERS
OVER
70
ARTICLES WRITTEN PER YEAR5
1. By MarshBerry Valuation Teams Since It’s Inception 2. Based on number of hours in 2014 facilitators and relationship managers spent in pre-meeting preparation, during Peer Exchange Network meetings, and post-meeting follow-up and consulting engagements. 3. According to 2014 MarshBerry data; PHP: Perspectives for High Performance 4. There may be some duplication in the number of firms counted as certain firms subscribe to and/or provide data for multiple benchmarking services. 5. Includes 3rd party and proprietary publications, as tracked by MarshBerry.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
3
2014 MarshBerry M&A Market Presence
479 TOTAL #1 RANKING BY SNL FINANCIAL FOR EACH OF THE PAST 16 YEARS
30%
OF TOTAL ADVISED DEAL FLOW CLOSED SINCE 1999 AS TRACKED BY SNL FINANCIAL
M&A TRANSACTIONS CLOSED SINCE 1999c
$1.8B IN ADVISED TRANSACTION VALUE SINCE 2012a OVER
175 BANK INSURANCE M&A TRANSACTIONS SINCE 1997
235 DIAGNOSTIC AND CONFIRMATORY DUE DILIGENCE PROJECTS OVER LAST TEN YEARS
COMPLETED MORE THAN
OVER M&A transactions since 1995 with the
250
100 largest brokers of U.S. business as identified by Business Insurance
This data displays a snapshot at a particular point in time of the number of deals as reported by SNL Financial. It has not been updated to reflect subsequent changes, if any.
a Based upon maximum transaction price; MarshBerry closed deals through 12/31/14, excludes deals where MarshBerry represented both parties. b Completed transactions in the United States for 2014 as reported by SNL Financial, January 26, 2015. c These totals include certain transactions completed by Marsh, Berry & Company, Inc. professionals while employed at another firm, whereby substantially all of the assets were acquired by Marsh, Berry & Company, Inc. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
4
2015 SNL Financial Rankings
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
5
All Eyes Will Be On You
Past performance is not necessarily indicative of future results. Individual results and experience may vary. Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
6
Many of Our Clients
•
The decision to sell is like a light switch, not a dimmer switch.
•
It seems like the owners of every agency that sold today were promoting that they will never sell yesterday.
•
It seems like every agency owner in America will never sell until the day they all decide to sell.
•
The Crime: Most agency owners inevitably don’t get what they want and even worse, they don’t see it coming.
Past performance is not necessarily indicative of future results. Individual results and experience may vary. Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
7
It is Worth the Effort… Find a Better Investment Hypothetical Independent *
EBITDA Less Tax After-Tax
25% 11% 14%
After-Tax Divide: Revenue Multiple (Example 8 x EBITDA) Earnings Yield
14% 2.0 7%
Earnings Yield Plus: Organic Growth Total Return on Ownership
7% 7% 14%
*Hypothetical example. Figures are estimates for illustration purposes and do not guarantee value or performance. This is not intended to represent any specific client experience. MarshBerry Capital, Inc. does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
8
The Symptom vs. The Illness
Types of Purchase Price •
Base Purchase Price: The amount of proceeds paid at closing, including any escrow amounts for indemnification items, (i.e., Paid at Close) plus amount buyer may initially hold back, but which are paid as long as the seller’s performance does not materially decline, or which may be paid at closing but is subject to a potential adjustment (i.e., Live Out).
•
Realistic Earn Out: The likely purchase price to be achieved in the future based on a number of factors including seller actual or expected performance, buyer and seller realistic discussion of earn out metrics, etc.
•
Maximum Earn Out: The additional earn out above the Realistic Earn Out, that if achieved, would generate the maximum possible earn out payment.
Source: MarshBerry Experience 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
Types of Sellers •
•
•
Platform: Relatively large, high-performing agency to serve as a hub or foundational piece of the insurance distribution platform for all or some portion of the acquirer’s footprint. High level transaction for a buyer, typically due to new geography niche, expertise, size, talent, etc. Stand Alone: Typically a larger agency, at least $3 to $5 million in revenue, strong management and leadership team to expand the insurance distribution platform for all or some portion of the acquirer’s footprint. Roll In: Typically a smaller agency that will be consolidated into one of the acquirer’s existing operations, but expanding the insurance distribution capability within the acquirer’s footprint.
Source: MarshBerry Experience 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
Agency Value Comparables All Buyers - Multiple of EBITDA
See Footnotes 1, 3, 4, 5, 6, 7, 8, 9 Source: MarshBerry proprietary database. Data compiled from transactions in which we were directly involved, those from which we have detailed information, and transactions in the public record. Past performance is not necessarily indicative of future results. 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
12
Looking Back 36 Months
•
23 of the top 100 brokers
•
$7.2 B in Revenue
•
22.5% of total revenue of the top 100 brokers
Source: MarshBerry Opinion and Experience. Individual results may vary. 100 Largest Brokers of U.S. Business Per Business Insurance Magazine, July 20, 2015 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
13
Meow to Roar 1. 2007 = $4B •
USI Insurance Services privatized by Goldman Sachs Group, Inc.
•
HUB International, Inc. privatized by Apax Partners and Morgan Stanley
•
Alliant recapitalization with Blackstone
2. 2012 - 2013 = $8.5B Return with Debt Leverage Source: SNL Financial, Insurance Journal, and other publicly available sources 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
14
Total Announced U.S. Transactions
All transactions in this presentation are announced deals involving public company acquirers, banks, and private equity groups as well as private company acquirers. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15%-30% of all transactions are actually made public. Past performance is not necessarily indicative of future results. Source: SNL Financial, Insurance Journal, and other publicly available sources
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
15
Private Equity Backed Buyers Announced U.S. Transactions
1
All transactions in this presentation are announced deals completed by agencies/brokers with external sources of funding. Deals completed prior to private equity investment are not included. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15%-30% of all transactions are actually made public. Past performance is not necessarily indicative of future results. Source: SNL Financial, Insurance Journal, and other publicly available sources
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
16
Private Equity Capital Overhang: Dry Powder That Could Potentially Be Deployed To Insurance Broker Space
$30.0 B
$19.4 B
$17.5 B
$12.4 B $7.0 B $3.2 B
$4.2 B $0.8 B
$1.8 B
Data as of 9/11/15. P.E. = Private Equity (96.2) Capital Overhang or Dry Powder: the current amount of capital available to private equity investors. Source: PitchBook Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230
17
Why Are So Many Attracted to Private Equity?
1. Retain equity and capitalize on today’s high valuation multiples 2. Help secure capital for acquisition growth 3. Participate in the upside created through debt leverage 4. A second bite of the apple in a secondary transaction 5. From a Whisper to a Roar, The Guy Next Door, Really? 6. Uber Wealth Creation: 20% exceeds 80% (rinse /repeat, rinse / repeat) 7. Variety
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
18
Variety
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Centralized structure / strategy / reporting Public announcement of the deal Specialty Your team will run a practice or region Select members will be on executive team Local agency name will be retained Retain Equity in your agency Retain a small amount of equity Post closing, dividends are paid Buyer will provide access to capital for M&A Subsequent acquisitions help Earn Out Guaranteed employment agreement One standard Producer Compensation Plan One automation system Consolidate carrier contracts Overhead allocation Have recently recapitalized Start up Bullish on employee benefits Encourage and support nepotism
Decentralized structure / strategy / reporting Deal kept quiet from the public Generalist You will be absorbed into another firm Key members will not have leadership role Agency name will change immediately Acquire equity in the buyer Retain a large amount of equity Dividends are not paid but retained Buyer will handle all M&A Buyer retains the benefit of the acquisition Key people will become employee at will Keep your producer compensation plan Every automation system Contracts managed locally No home office costs Will recapitalize soon Over $1 billion in revenue Don’t understand employee benefits Are ambivalent about nepotism
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
19
Why the Interest by Private Equity?
1. Recurring revenue industry 2. Cash flow versus capital intensive business 3. Private equity buyers enjoy easy access to credit at low cost 4. Private equity buyers are flush with capital given global search for yield 5. Overabundance of capital requires deployment in large chunks 6. Highly fragmented market (runway and parachute ensuring exit) 7. The dirty little secret
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Dirty Little Secret
Source: MarshBerry Opinion and Experience. Marsh, Berry & Co., Inc. and MarshBerry Capital, Inc. do not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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No Tax, Significant Cash Flow
1. PEG Parent Valuation
5. Cash Flow 300,000,000 30.00% 90,000,000 10.00 900,000,000
Revenue EBITDA Margin EBITDA $ EBITDA Multiple Book of Business Value
EBITDA $ Less: Amortization Less: Interest Taxable Income Plus: Amortization Cash Flow 900,000,000 Cash Flow as Multiple of EBITDA
2. Amortization
Value Number of Years Amortization Expense
15 6. Agency Value (Including Earn Out) 60,000,000 Revenue
3. Leverage
Debt: 7 x EBITDA Equity Value 4. Interest Expense
Debt Interest Rate Interest Expense
70% 30% 100%
90,000,000 (60,000,000) (33,000,000) (3,000,000) 60,000,000 57,000,000 0.63
EBITDA Margin 630,000,000 EBITDA $ 270,000,000 EBITDA Multiple (Including E.O.) 900,000,000 Book of Business Value
5,000,000 30.00% 1,500,000 10.00 15,000,000
7. Cash versus Rolled Equity 630,000,000 Cash (Incl. E.O.) 70% 5.25% Rolled Equity 30% 33,000,000 Total
10,500,000 4,500,000 15,000,000
EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization; E.O.: Earn Out PEG: Private Equity Group The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The De-levering Impact of Cash Flow
11 10 9 De-Levered EBITDA Multiple At Zero Growth
8 7 6 5 4 3 2 0
1
2
3
4
5
6
7
8
9
10
11
Year EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization; E.O.: Earn Out PEG: Private Equity Group The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity
8. Return % on Invested Equity Organic Growth of Parent Scenarios Book of Business Value of Parent
2.0% 900,000,000
4.0% 900,000,000
6.4% 900,000,000
Book of Business Value Growth Less: Capital Gains, Est at 20% Book of Bus. Value growth A.T.
18,000,000 (3,600,000) 14,400,000
36,000,000 (7,200,000) 28,800,000
57,600,000 (11,520,000) 46,080,000
Book of Bus. Value growth A.T. Plus: Cash Flow Return to Owners Divide: Invested Equity Return on Invested Equity
14,400,000 57,000,000 71,400,000 270,000,000 26.4%
28,800,000 57,000,000 85,800,000 270,000,000 31.8%
46,080,000 57,000,000 103,080,000 270,000,000 38.2%
The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. A.T.: After-Tax 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity – Event One 9. Return $ on Invested Equity - Event One Organic Growth of Parent Scenarios Return on Invested Equity
2.0% 26.4%
Rolled Equity Year One Year Two Year Three Year Four Year Five
4.0% 31.8%
6.4% 38.2%
1.0 1.3 1.6 2.0 2.6 3.2
1.0 1.3 1.7 2.3 3.0 4.0
1.0 1.4 1.9 2.6 3.6 5.0
10,500,000 4,500,000 15,000,000
10,500,000 4,500,000 15,000,000
10,500,000 4,500,000 15,000,000
Agency Value Post-Event One Appreciation Rolled Equity Year One Five Years Later Value of Rolled Equity in Fifth Year
4,500,000 X 3.2 14,400,000
4,500,000 X 4.0 18,000,000
4,500,000 X 5.0 22,500,000
Agency Value Post-Event One Appreciation Cash at Closing Event One Value of Rolled Equity in Fifth Year Total Value Fifth Year Including Cash
10,500,000 14,400,000 24,900,000
10,500,000 18,000,000 28,500,000
10,500,000 22,500,000 33,000,000
16.6 5.0
19.0 5.7
22.0 6.6
Agency Value Pre-Event One Appreciation Cash at Closing Event One Rolled Equity Year One Book of Business Value
Multiple of EBITDA Multiple of Revenue
70% 30%
10.0 3.0
Excluding Acquisition The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Return on Invested Equity – Event Two 10. Return $ on Invested Equity - Event Two Organic Growth of Parent Scenarios Multiple of Revenue
2.0% 26.4%
Agency Value Post-Event One Appreciation Cash at Closing Event One Value of Rolled Equity in Fifth Year Total Value Fifth Year Including Cash
4.0% 31.8%
6.4% 38.2%
10,500,000 14,400,000 24,900,000
10,500,000 18,000,000 28,500,000
10,500,000 22,500,000 33,000,000
10,080,000 4,320,000 14,400,000
12,600,000 5,400,000 18,000,000
15,750,000 6,750,000 22,500,000
Agency Value Post-Event Two Appreciation Rolled Equity Year Five Five Years Later Value of Rolled Equity in Tenth Year
4,320,000 X 3.2 13,824,000
5,400,000 X 4.0 21,600,000
6,750,000 X 5.0 33,750,000
Cash at Closing Event One Cash at Closing Event Two Value of Rolled Equity in Tenth Year Total Value Tenth Year Including Cash
10,500,000 10,080,000 13,824,000 34,404,000
10,500,000 12,600,000 21,600,000 44,700,000
10,500,000 15,750,000 33,750,000 60,000,000
22.9 6.9 2.3
29.8 8.9 3.0
40.0 12.0 4.0
Agency Value Pre-Event Two Appreciation Cash at Closing Event Two Rolled Equity Year Five Value of Rolled Equity in Fifth Year
Multiple of EBITDA Multiple of Revenue Multiple of Closing Value
70% 30%
The above example is for illustrative purposes only and not meant to represent any specific client experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Valuation Headwinds
Interest Rates
Leverage Ratios
Rate Environment
Economic Growth
Presidential Election
Source: MarshBerry Opinion and Experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Growth Rate to Stay Even
11.00
30,000
10.00
25,000
9.00
20,000
8.00
15,000
7.00
10,000
6.00
5,000
5.00
0 2015 Multiple Including E.O
After‐Tax Value
Multiple Inlcuding E.O.
Organic Growth BEP: 10%
2019 After‐Tax Value
Assumes a $10M Revenue Agency Marsh, Berry & Co., Inc. and MarshBerry Capital, Inc. do not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. E.O.: Earn out; BEP: Break Even Point 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Illness
Historical Organic Growth Rates
23% 20%
20.7% 17.9%
16.4%
18% 15% 13%
10.8%
10.5%
11.4%
10% 8% 5%
15.6%
14.8%
6.0%
6.3%
4.1%
3%
7.5%
7.7%
6.4%
2.9% 0.4%
0.1%
0% -3% -3.8%
-5% 2007
2008
2009
2010
All Agency Average
2011
2012
2013
2014
2015*
Best 25%
* Data as of June 30, 2015. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”), MarshBerry Market and Financial Outlook Survey, 2014. “Average” is the average of all agencies in the database, while “Best 25%” is the best 25% of the average performance. Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Allowing External Factors to Control Your Sustainability 20.00%
15.00%
10.00%
6.3%
5.00% 4.1% 0.4%
0.1%
0.00%
7.5%
7.7%
2013
2014
6.4%
2.9%
-3.8% -5.00% 2007
2008
2009
2010
2011
2012
2015*
Total Commissions & Fees Organic Growth
*Data through June 30, 2015. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Weighted Average Owner Age 55.0
54.8
Weighted Average Owner Age
54.5
54.1
54.0 53.6 53.5 53.0
52.9
52.9
2008
2009
53.5
53.5
2012
2013
54.0
52.5 52.1 52.0 51.5 51.0 50.5 2007
2010
2011
2014
2015*
*Through 6/30/2015. Past performance is not necessarily indicative of future results. Source: The data is from a proprietary financial management system of Marsh, Berry & Co., Inc., Perspectives for High Performance (“PHP”). Agencies subscribe to the PHP reports and data from each subscriber is updated every quarter. The system calculates critical financial and productivity ratios and compares these ratios to the Average Performance in the group. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Percent Ownership by Generation
MarshBerry
All Agency Average*
1% 1% 10% 32% 30%
59%
67%
Baby Boomers (1946 - 1964)
Generation X (1965 - 1980)
Millennial (Generation Y) (1981 - 2000)
Institution
Past performance is not necessarily indicative of future results. * Average of all agencies in the MarshBerry PHP database. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Historical All Agency EBITDA as a Percent of Net Revenue 35% 30%
29.7%
28.1%
26.6%
26.5%
26.4%
27.2% 27.8%
26.3%
26.4%
25% 20% 15%
14.5%
13.6%
13.7%
13.4%
14.6%
15.4%
16.4%
15.8%
16.4%
10% 5% 0% 2007
2008
2009
2010
2011
All Agency Average
2012
2013
2014
2015*
Best 25%
* Data as of June 30, 2015. EBITDA: Earnings Before Interest Taxes Depreciation and Amortization. Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”). “Average” is the average of all agencies in the PHP database, while “Best 25%” is the best 25% of the average performance. Only includes agencies from U.S. and Canada. It excludes agencies from Puerto Rico, U.S. Virgin Islands, and Peru. Past performance is not necessarily indicative of future results. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Valuation Delta Hypothetical Independent
Example Internal*
Revenue
Example Sale**
Expense Cuts Resulting from Proceeds 1. SBU threshold $5,000 - $10,000
100.0%
100.0%
Compensation
65.0%
55.0%
3. AE Terminations / Book Movement
Other Expenses
18.6%
15.0%
4. Retirements, Control = Cash vs. Note
83.6%
70.0%
EBITDA
16.4%
30.0%
SBU – Small Business Unit; AE = Account Executive EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
EBITDA
16.4%
30.0%
*Data from MarshBerry proprietary benchmarking database – Perspectives for High Performance.
Base EBITDA Multiple
6.00
9.00
**Hypothetical example. Figures are estimates for illustration purposes and do not guarantee value or performance
Revenue Multiple
0.98
2.70
Source: MarshBerry Opinion & Experience
Comp. Buy-Down
(0)
(.10)
Revenue Multiple
0.98
2.60
0
1.00
0.98
3.60
Total Expenses
Earn-Out Revenue Multiple Revenue Multiple
2. Renewal Rate 20% - 25%
5. Concentrated Leadership
Hypothetical example. This is not intended to represent any specific client experience. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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The Revelation
1. If you run your business as if its for sale, you likely won’t need to sell 2. Eliminate the valuation delta and an internal sale may not be 1/3 3. The changes are the same…
It is not if, but when.
Source: MarshBerry Opinion and Experience. Individual results may vary. 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Considerations When Wanting to Grow Your Agency Four Times its Size in Ten Years
Goal Required of Every CEO: What is Your Plan to Double in Value? 72 Rule of 72:
Growth Rate
Rule of 72 72 72 72 72 72 72
=
Growth Rate 2.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Years to Double in Value
Years To Double 36 14 7 5 4 3
The above example is for illustrative purposes only. Individual results may vary. Source: Investopedia. 2015 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Four Times Your Size in Ten Years
1. Organizational a. Corporate infrastructure: CFO, COO, CMO, CSO, CIO b. KPIs integrated into accountability reporting, bonus and merit raise system c. External leadership development education d. Structured, process driven recruiting and retention infrastructure e. Onboarding process, structured training through internal university 2. Internal and External Communication Strategy a. Internal culture identification, design and reinforcement strategy b. Brand refresh plan, consistency and relevancy driven by CMO c. 2020 Strategic Blueprinting (Strategies by Unit, Future Organizational Chart) d. Publically distributed annual report 3. Governance a. Outside board of advisors or directors b. Ownership separate from employment c. Mandatory age to sell stock d. Financial Audit e. Use of balance sheet leverage and / or outside equity investment Source: MarshBerry Opinion & Experience. KPI: Key Performance Indicators 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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39
Four Times Your Size in Ten Years 4. Sales Management a. Consistent Sales Management CSO Structure, not under Regional Presidents b. Non-optional behavior consistently managed through policy c. Budget validation to 20% of prior-year commission d. Industry niche / Affinity Group organizational structure e. Differentiation through Value Creation; programs, alternative risk, captives 5. Retention a. Proprietary benchmarking within niches b. Intellectual capital within niches distributed by white papers and seminars c. Service Timeline and Stewardship non-optional on all accounts above select d. Internal audit supported by technology: Claims, Workflow, Timelines, E&O b. Regional centralization of service (PL, Small CL, Small EB) 6. Acquisition a. Structured acquisition strategy b. Geographic expansion strategy (domestic and international) c. Dedicated internal bankers and due diligence team d. Deal pipeline management Source: MarshBerry Opinion & Experience. E&O: Errors & Omissions; PL: Personal Lines; CL: Commercial Lines; EB: Employee Benefits 2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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40
Where is Your Blueprint?
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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All Employee Planning by Unit 2020 Corporate Goal:
15% Annual Organic Growth Rate Double in Five Years Three Objectives by Unit to Reach Corporate Goal For Example:
Each Niche, Line, Practice
Niche: 1. Energy 2. Life Sciences 3. Construction 4. Equine 5. Public Entity 6. High Net Worth PL
Each Niche, Line, Practice
Lines 1. General CL 2. Small CL 3. PL
Each Niche, Line, Practice
Practice Groups 1. Loss Control 2. Claims 3. Safety
Finance HR
Marketing
IT
Impediments to Reaching Objectives Finance HR
Marketing
IT
Strategies and Resources Required to Overcome Impediments Finance HR
Marketing
IT
Action Plan through 2020: Deadlines and individuals responsible Each Niche, Line, Practice
Finance HR
Marketing
IT
Example is for illustrative purposes only. Individual results may vary. Source: MarshBerry Opinion & Experience.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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Q&A
Definitions
1.
Multiples calculated based on deals closed in 2014.
2.
Quartiles are determined based on the realistic purchase price as a multiple of EBITDA.
3.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
4.
Base Purchase Price: The amount of proceeds paid at closing, including any escrow amounts for indemnification items, (i.e., Paid at Close) plus amounts that the buyer may initially hold back, but which are paid as long as the sellers performance does not materially decline, or which may be paid at closing but are subject to a potential adjustment (i.e., Live Out).
5.
Realistic Earn Out: The likely earn out to be achieved in the future based on a number of factors including actual seller performance, buyer and seller realistic discussion of earn out metrics, etc.
6.
Maximum Earn Out: The additional earn out above the realistic level, that if achieved, would generate the maximum possible earn out payment.
7.
Platform: High level transaction for a buyer, typically due to new geography niche, expertise, size, talent, etc.
8.
Stand Alone: The operation will continue to operate out of a separate location.
9.
Roll In: The operation will be combined with another location.
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230
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The information contained herein is for information purposes only. It is not intended as, and does not constitute, an offer or solicitation for the purchase or sale of any financial instrument. Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation, and may not be updated or otherwise revised to reflect information that subsequently becomes available, or changes occurring after the date hereof. MarshBerry Capital, Inc. makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Past performance is not necessarily indicative of future results. Certain information contained herein constitutes forward-looking statements which can be identified by the use of terms such as “may,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” (or the negatives thereof) or other variations thereof. Due to various uncertainties and actual events, including those discussed herein and in other documents, actual results or performance may differ materially from those reflected or contemplated in such forward-looking statements. As a result, individuals should not rely on such forward-looking statements in making their financial decisions. We have no duty to update or amend such forward-looking statements. An investment in any vehicle discussed herein has not been recommended or approved by any U.S. Federal or state or any non-U.S. regulatory authority. Furthermore, the foregoing authorities have not passed upon the accuracy or determined the adequacy of this presentation. Any representation to the contrary is a criminal offense. MarshBerry Capital, Inc. does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters. Circular 230: Any tax advice or communication contained within this document was not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed. Securities offered through MarshBerry Capital, Inc., Member FINRA, SIPC, and an affiliate of Marsh, Berry & Co., Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122, (440) 354-3230
2016 Marsh, Berry & Co., Inc. – No part of this presentation may be reproduced, published, stored or transmitted by any means, electronic or mechanical, without prior written permission of Marsh, Berry & Co., Inc. Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.
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