Insurance Agency Valuation Multiples
Looking for an accurate estimate of your insurance agency’s value? Valuation multiples play an important role in valuing an insurance agency. However, determining reliable insurance agency valuation multiples requires an extensive assessment. To ensure accuracy, it is best to work with a professional business appraiser. During a professional insurance agency valuation, an appraiser considers a wide variety of factors that influence the value of an insurance agency. This analysis provides participants with useful insights on the company’s value, growth potential, strengths, weaknesses, and more.
This article reviews the most common insurance agency valuation multiples. It is important to note that the metrics we provide are only averages and will not provide a precise value estimate. For an accurate insurance agency valuation, connect with an experienced valuation expert.
Peak Business Valuation is a trusted business appraiser that frequently helps individuals looking to buy, grow, or sell insurance agencies. We can provide you with a timely and reliable business valuation for an insurance agency. In addition, we can discuss any questions you may have. Get started by scheduling a free consultation with Peak Business Valuation below!
What Are Insurance Agency Valuation Multiples?
Valuation multiples are financial ratios that help determine an insurance agency’s fair market value. This indicates what buyers are likely to pay to acquire an insurance agency. Insurance agency valuation multiples are typically based on seller’s discretionary earnings (SDE), EBITDA, and revenue. Business appraisers consider multiple factors when identifying the most relevant valuation multiples.
Common Insurance Agency Valuation Multiples
SDE, EBITDA, and revenue multiples are widely used for valuing an insurance agency. Below, we examine each metric and provide common multiple ranges for the insurance industry. Keep in mind that these ranges are benchmarks, and will not provide reliable insights. If you have further questions, see Valuation Multiples for an Insurance Agency.
SDE Multiples for an Insurance Agency
SDE multiples reflect an insurance agency’s seller’s discretionary earnings (SDE). To calculate SDE, business appraisers add back discretionary expenses, non-recurring costs, and owner compensation to net earnings. Additionally, the level of owner involvement can influence SDE multiples. Understanding SDE allows agency owners, buyers, and sellers to evaluate profitability. These multiples are typically most useful for smaller insurance agencies.
Formula: Value = SDE × Multiple
Range: SDE multiples for insurance agencies typically range from 3.18x to 4.33x SDE.
Insurance Agency EBITDA Multiples
Next, EBITDA multiples assess an insurance agency’s value in relation to its earnings before interest, taxes, depreciation, and amortization. This metric is useful for determining an agency’s potential return on investment (ROI) and earning potential. Larger insurance agencies often benefit from EBITDA multiples as they enable direct comparisons between businesses.
Formula: Value = EBITDA × Multiple
Range: EBITDA multiples for insurance agencies generally range from 4.28x to 5.24x EBITDA.
Revenue Multiples for an Insurance Agency
Revenue multiples evaluate an insurance agency’s past 12 months of revenue to estimate its value. While these multiples can be helpful, they do not account for important metrics such as profitability and operational costs. As such, Peak Business Valuation prefers cash flow-based multiples like SDE and EBITDA. When valuing an insurance agency, Peak generally uses a combination of methods to ensure an accurate estimate. See How to Value an Insurance Agency for further insights.
Formula: Value = Revenue × Multiple
Range: Revenue multiples for insurance agencies typically range from 1.57x to 2.41x revenue.
At Peak Business Valuation, we provide insurance agency valuations on a regular basis. If you want to get started, schedule a free consultation with Peak Business Valuation today!
How to Value an Insurance Agency Using Multiples
Using the above multiples can provide a helpful estimate of your insurance agency’s value. However, understanding which multiples are best requires a trained eye. For instance, SDE multiples are more common for smaller, owner-driven agencies, whereas EBITDA is more suitable for larger firms.
To connect with a valuation expert, schedule a free consultation with Peak Business Valuation today! You can also see How to Value an Insurance Agency for more guidance.
Factors Affecting Insurance Agency Valuation Multiples
Insurance agency valuation multiples can fluctuate based on many different factors. Understanding these value drivers helps agency owners strategize to increase their insurance agency’s value. Below are some critical factors that impact insurance agency valuation multiples:
- Client Retention Rates: High client retention rates often result in stability and recurring revenue. This has a positive influence on insurance agency valuation multiples.
- Intense Competition: The insurance industry is highly competitive. Pressure from larger corporations can affect an insurance agency’s performance and overall value.
- Professional Relationships: Establishing relationships with underwriters helps enhance an agency’s product mix, resulting in higher valuation multiples.
- Technology & Operational Efficiency: Implementing technology such as CRM systems and automated underwriting can enhance efficiency and boost the value of an insurance agency.
For more information, refer to Value Drivers for an Insurance Agency.
Conclusion
Applying valuation multiples is a quick way to estimate an insurance agency’s value. However, it is important to keep in mind that multiples do not consider many key metrics. For the most accurate insurance agency valuation, consider obtaining a professional insurance agency valuation. A professional business appraiser will provide insights on your agency’s value, market trends, growth potential, risks, advantages, and more. This can help you make informed decisions whether you are buying, expanding, selling, or seeking financing for an insurance agency.
As a business appraiser, Peak Business Valuation helps insurance agency owners across the nation. We are here to provide you with a reliable insurance agency valuation and answer any questions on valuing an insurance agency. Start today by scheduling your free consultation with Peak Business Valuation below!
For more insights, read Insurance Agency Valuations or How to Value an Insurance Agency.
