We have a bulk discount! Buy 20 or more cases priced at $9.50 each in a single order and automatically get 50% off!

Smith Brothers Insurance: Managing Successions at a Growing Insurance Agency

Smith Brothers Insurance: Managing Successions at a Growing Insurance Agency

Cooked, Document

Yale School of Management
Regular price
Sale price
Quantity must be 1 or more

In October 2014, Joe Smith, the CEO of Smith Brothers Insurance, reflected on the fact his business was caught in the midst of three separate succession challenges. Smith Brothers was an insurance agency owned by Joe and his sister, Kim, in Connecticut that had achieved strong growth over the previous decade.

First of all there was the “book succession” that occurred when insurance agents retired. Agents nearing retirement over the next 10 years at Smith Brothers had built long-standing relationships with business clients and these relationships generated a large portion of Smith Brothers’ revenue. To retain clients as their agents left the firm required significant planning and capital to transition the relationships to other, perhaps younger, agents at the firm.

Then there was his own succession to consider. Joe was 48 years old, and his sister, Kim, was 53. Collectively, they owned 92% of the company (a small subset of employees owned 8%). Neither Joe nor Kim was ready to retire, but they knew it was essential to start thinking about this inevitability. Agencies of Smith Brothers’ size were currently trading at valuations near 8.0–9.5x EBITDA (earnings before interest, taxes, depreciation and amortization). If Joe and Kim were to sell the company to Smith Brothers employees anywhere near that valuation, they knew they would have to consider the transaction roughly a decade in advance.

Finally, there was an industry-wide succession going on as the owners of other agencies were approaching retirement and were looking to sell out. Smith Brothers had acquired numerous businesses over the previous five years that had fueled the company’s rapid growth. Retiring owners of proximate insurance agencies were now approaching Joe directly and given the fact that the weighted average shareholder age of independent agencies was approximately 60 years, there would be many more. Agency valuations in the industry were rising and Joe wondered whether Smith Brothers could, or should, continue to make acquisitions.

All three successions would take place over the next ten years. And while ten years seemed like a long time, Joe believed that he had to start making plans to manage these successions now.

Publication Date: 2019-06-12

Keywords: Family-owned business, Leadership Succession, Privately-held, Acquisitions, Mergers, Women in Leadership

Suggested Citation: Jason Pananos and A.J. Wasserstein, "Smith Brothers Insurance: Managing Successions at a Growing Insurance Agency," Yale SOM Case 19-012, June 12, 2019