Why would a title agency owner want to sell their business? If an agency owner wants to sell their business, what steps should they take? On the other side of the ledger, what qualities is a prospective buyer looking for when considering an acquisition.
These questions and others were addressed by Craig Haskins, president and CEO of Knight Barry Title Group, in a fireside chat session during the Ohio Land Title Association’s annual convention
Haskins spoke with Cory Thompson, assistant vice president and Ohio state agency manager with Old Republic National Title Insurance Co., about his strategy when assessing whether Knight Barry should purchase an agency. In turn, he discussed the factors title agency owners should consider as they assess whether they should sell their agency.
The Title Report caught up with Haskins for some additional thoughts on mergers and acquisition strategies.
Knight Barry Title Group analyzes 10 to 15 acquisitions each year, and has more than 80 offices in Wisconsin, Michigan, Minnesota and Florida, according to its website.
During the past 25 years, Haskins said his firm has acquired 36 title agencies, most of which are firms with a single branch or a couple of branches, less than $2 million in annual revenue and 10 or fewer employees.
“We’re good at building efficiencies on top of what the company built itself, which allows it to grow quickly,” Haskins said.
Why would an agency want to sell?
Haskins believes the fastest-growing reason that an agency owner wants to sell is to keep pace with the technological changes happening in the title industry.
“In many markets, the way title is produced and (the) closing process has become quite different than it was just 10 years ago,” he told The Title Report. “Some of the technology requirements are complicated and expensive and owners are looking to partner with someone who already has it figured out.”
Meanwhile, Haskins said the two most common reasons for selling are succession planning and a significant monetary event.
“Often, those two go hand in hand,” Haskins said.
An agency owner may also want to sell because of regulatory burdens; they can’t expand on their own and they fear they’ve reached their peak; they’ve had a strong three-to-five year run and want to go out while they’re still successful; or they are unable to keep up with the demand for services.
The most common mistake agency owners make
According to Haskins, the most common mistake owners make when they decide to sell is they don’t have a successor in place. Haskins told Thompson business owners are “rarely” prepared for the changeover and noted he often hears them say they want to “find the next me.” Haskins said they should have done that before taking steps to sell. He added the best thing he can hear from a business owner who wants to sell is “no one will know I’m gone.”
If an owner wants to retire within a couple of years of selling their agency, Haskins told The Title Report it’s “imperative to identify the new leader well before (they) start shopping their title company for sale.” He suggested molding an internal employee who is “customer-facing and dynamic” to become the new leader.
“The new buyer will need to be convinced that the owner’s retirement and absence from the office will not impact the overall performance of the company,” he explained.
Haskins’ emphasis on the importance of having a solid successor in place developed, in part, because a handful of agencies acquired by Knight Barry were later sold or closed.
When that’s happened, Haskins said, “Usually it’s because I’ve made a poor decision about my own ability to find a successor to the retiring owner and the office is left with little leadership. It’s harder than it seems to find a great leader to take over from a legacy owner.”
As a result, Haskins now “reject(s) any acquisition offers from companies without a leadership group who will all stay on and work like hell after joining Knight Barry.”
What should agency owner do if they decide they want to sell?
If an agency owner wants to sell their business, they should start planning “a handful of years” in advance, Haskins noted.
In addition to having a successor in mind, Haskins offered a checklist of actions that agency owners should take before they sell their business:
- Organize leases, contracts, insurance policies, employee data and other documents;
- Clean up financials and the balance sheet;
- Have their tax preparer and lawyer ready to go, since Knight Barry’s role in the acquisition process usually happens quickly;
- Have a plan for how they’ll wind down their entity if the buyer is an asset buyer.
Haskins added the seller should have a realistic purchase price in mind and not ask the buyer to do the work on the valuation. They should have a plan, get some guidance and be somewhat flexible on the terms or structure of a potential deal.
If they are selling to another agent, sometimes the seller may need to finance the transaction. As a result, Haskins noted it’s important for the buyer to understand the payout may take a couple of years.
What should a buyer consider before taking the plunge?
Haskins also touched on some items that a prospective buyer should consider before moving forward on a transaction. For example, a buyer should pay close attention if the seller has not made capital improvements or enhanced the technology.
“Those items may need to be rectified on day one,” Haskins said.
The buyer will also want to see that the seller’s staff understands how to use the latest fraud prevention tools, and has a good process for protecting both the consumer’s data and money.
If an owner plans to retire, Haskins noted it is critical that the company’s staff and leaders are ready to hit the ground running.
“This is the most important thing for me as a buyer,” Haskins said. “I don’t want the order count or any financials to take a hit post-closing so I need to be assured the pieces are in place for a successful transition.”