Insurance Brokerage Valuation Multiples
Insurance brokerages are extremely valuable to individuals and businesses who are in need of reliable insurance coverage. To succeed in this industry, it is important to determine the true value of your insurance brokerage on the current market. This enables business owners to make informed decisions when buying, expanding, or selling an insurance brokerage. For a general fair market value estimate, insurance brokerage valuation multiples are an easy starting point.
This article explores the most common valuation multiples used to value an insurance brokerage. While valuation multiples can be helpful, they do not account for the unique traits of every business. As such, these metrics may provide unreliable estimates. If you need an accurate insurance brokerage valuation, it is best to connect with a professional business appraiser.
Peak Business Valuation specializes in valuing insurance brokerages across the nation. We are happy to provide a credible business valuation and answer any questions you have about the process. Start by scheduling a free consultation with Peak Business Valuation below!
What Are Insurance Brokerage Valuation Multiples?
Valuation multiples are financial benchmarks used to estimate a company’s worth in relation to its revenue, earnings, and other financial performance indicators. These tools help determine what a buyer might be willing to pay for an insurance brokerage based on comparable transactions. To identify suitable insurance brokerage valuation multiples, business appraisers examine recent sales of comparable brokerages. For more information, see Valuation Multiples for an Insurance Brokerage.
Common Insurance Brokerage Valuation Multiples
When valuing insurance brokerages, Peak Business Valuation frequently uses SDE, EBITDA, and revenue multiples. Each multiple measures a business’s value from a different financial viewpoint. To ensure a comprehensive value estimate, business appraisers often apply more than one multiple. We describe each of these multiples and provide average ranges observed in the insurance brokerage industry.
SDE Multiples for an Insurance Brokerage
Seller’s Discretionary Earnings (SDE) indicate the total financial benefit available to a single owner of the business. SDE is calculated by adjusting net income to include non-recurring and discretionary expenses. These are common multiples for smaller insurance brokerages where the owner plays an active role in daily operations.
Formula: Business Value = SDE × Multiple
Range: Insurance brokerages often transact between 3.18x and 4.33x SDE.
EBITDA Multiples for an Insurance Brokerage
EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, measures a company’s operating profitability. This multiple is ideal for larger insurance brokerages with steady revenue streams and established operations. It also helps compare the profitability of similar companies within the industry.
Formula: Business Value = EBITDA × Multiple
Range: EBITDA multiples for insurance brokerages can range from 4.28x to 5.24x.
Revenue Multiples for an Insurance Brokerage
Revenue multiples provide an estimate of value based on gross sales over a twelve-month period. Although this metric is helpful for understanding the size of a business, it does not consider profitability. As such, Peak Business Valuation typically uses revenue multiples alongside earnings-based multiples.
Formula: Business Value = Revenue × Multiple
Range: Insurance brokerages generally sell between 1.57x and 2.41x revenue.
At Peak Business Valuation, we incorporate insurance brokerage valuation multiples as part of a broader valuation process. If you need a formal insurance brokerage valuation or have any questions, we are happy to help. Schedule your free consultation below to begin.
How to Value an Insurance Brokerage Using Multiples
Valuation multiples provide a useful estimate of an insurance brokerage’s worth, but there are many additional factors to consider. A professional business valuation involves a deep analysis of the firm’s financials, market position, client relationships, and more. Valuation experts may also use weighted averages to account for significant financial fluctuations from year to year. To learn more, see How to Value an Insurance Brokerage.
Rules of Thumb for Insurance Brokerages
SDE, EBITDA, and revenue multiples are popular rule-of-thumb valuation methods. These benchmarks offer quick insights but do not consider all factors that influence a business’s worth. As such, rules of thumb should not replace a full business appraisal. For the most accurate results, it is essential to consult a certified business appraiser. If you have questions about the valuation process, reach out to Peak Business Valuation today.
Factors Affecting Insurance Brokerage Valuation Multiples
Many variables influence the valuation multiples applied to insurance brokerages. Understanding these value drivers allows business owners to make strategic decisions and increase a brokerage’s value. Some important factors to consider include:
- Client Retention Rates: High client retention indicates consistent revenue and financial stability, which can boost the value of the brokerage.
- Pricing Strategy: By offering more affordable insurance or annuity policies, an insurance brokerage can attract a wider range of customers. This promotes stronger insurance brokerage valuation multiples.
- Carrier Relationships: Strong relationships with reputable insurance carriers strengthen underwriting flexibility and boost buyer confidence, supporting a higher brokerage valuation.
- Regulatory Compliance: Insurance agencies and brokerages must comply with state and federal legislation. A strong track record of compliance is attractive to buyers and investors.
To learn more, see Value Drivers for an Insurance Brokerage.
Conclusion
Insurance brokerage valuation multiples are a pivotal tool for estimating the fair market value of an insurance brokerage. However, these metrics are simple rules of thumb that often provide unreliable value estimates. To ensure a comprehensive and credible insurance brokerage valuation, it is best to work with an experienced business appraiser.
As a professional business appraiser, Peak Business Valuation regularly helps individuals looking to buy, grow, or sell insurance brokerages. We can offer you a timely and accurate valuation and address any questions you may have. Schedule your free consultation with Peak Business Valuation today!
See Insurance Brokerage Valuations and Valuing an Insurance Brokerage for additional insights.
