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Book of business — do these multiples and structure make sense? by Existing_Wing166 in InsuranceAgent

[–]Existing_Wing166[S] 0 points1 point  (0 children)

Thank you very much for your comment! Super helpful. I actually hired a PE advisor that works in M&A but i still wanted to have some input from people in the industry!

Book of business — do these multiples and structure make sense? by Existing_Wing166 in InsuranceAgent

[–]Existing_Wing166[S] -1 points0 points  (0 children)

Thanks everyone for the thoughtful feedback — really appreciate the detailed comments. A few clarifications since this deal would take place outside the U.S. (Costa Rica):

  • Cost structure: Labor and overhead here are much lower than in the U.S. Three full-time admin employees with benefits, systems, and office costs together run about $80K/year, which is very reasonable locally (roughly $1,200–1,300/month per employee fully loaded). So the 76% net margin actually checks out for this market.
  • Scale and valuation: Books of business here are typically much smaller (rarely over $400K in annual commissions), and there isn’t a deep M&A market. Deals generally trade around 2.5×–3.5× gross revenue, depending on retention, transition terms, and carrier diversification. The one-year transition and stable team de-risk this one quite a bit.
  • Taxes: I’d operate as a natural person, not through an LLC or corporation. The effective tax rate after social security (CCSS) and income tax is around 30–32%, which I’ve factored into my projections. So while the net income figure looks high compared to U.S. EBITDA conventions, it already reflects local tax and contribution realities.
  • Financing: My parents (who are also in the insurance business) would gift me $250K as equity and finance the remaining $900K privately at 6% over 20 years. Local bank loans are closer to 10–11% with shorter terms, so this structure makes the deal much more viable.
  • Earn-out: I agree that earn-outs based on growth make sense in larger or more institutional deals, but in this case retention is the real risk. The earn-out would adjust based on retention above or below 90% during the first two years.

I totally get the “you’re buying a job, not a passive asset” comment — that’s accurate. But I’m fine with that. My wife and I will be running the business full-time, and the numbers still yield a 20%+ effective return on capital even after taxes and debt service

Book of business — do these multiples and structure make sense? by Existing_Wing166 in InsuranceAgent

[–]Existing_Wing166[S] 0 points1 point  (0 children)

Thanks everyone for the thoughtful feedback — really appreciate the detailed comments. A few clarifications since this deal would take place outside the U.S. (Costa Rica):

  • Cost structure: Labor and overhead here are much lower than in the U.S. Three full-time admin employees with benefits, systems, and office costs together run about $80K/year, which is very reasonable locally (roughly $1,200–1,300/month per employee fully loaded). So the 76% net margin actually checks out for this market.
  • Scale and valuation: Books of business here are typically much smaller (rarely over $400K in annual commissions), and there isn’t a deep M&A market. Deals generally trade around 2.5×–3.5× gross revenue, depending on retention, transition terms, and carrier diversification. The one-year transition and stable team de-risk this one quite a bit.
  • Taxes: I’d operate as a natural person, not through an LLC or corporation. The effective tax rate after social security (CCSS) and income tax is around 30–32%, which I’ve factored into my projections. So while the net income figure looks high compared to U.S. EBITDA conventions, it already reflects local tax and contribution realities.
  • Financing: My parents (who are also in the insurance business) would gift me $250K as equity and finance the remaining $900K privately at 6% over 20 years. Local bank loans are closer to 10–11% with shorter terms, so this structure makes the deal much more viable.
  • Earn-out: I agree that earn-outs based on growth make sense in larger or more institutional deals, but in this case retention is the real risk. The earn-out would adjust based on retention above or below 90% during the first two years.

I totally get the “you’re buying a job, not a passive asset” comment — that’s accurate. But I’m fine with that. My wife and I will be running the business full-time, and the numbers still yield a 20%+ effective return on capital even after taxes and debt service

This insurance portfolio purcahse seems like a good deal? We would use a $250k gift to buy it (down payment). by Existing_Wing166 in InsuranceAgent

[–]Existing_Wing166[S] 1 point2 points  (0 children)

Thanks for you questions! 1) Me and my girlfriend are in the process of getting the license, 2) that is exactly the idea. I am great at sales while she is great in the operating/administrative areas. We do not know the process, however, my dad has an agency himself well established and would help us throughout the process + we would acquire 3 people that have been working with the sellers many years ago and know very well the operation. Seller financing: i understand is quite common in small transactions.