BUSINESS SUCCESSION & EXIT PLANNING …...BUSINESS SUCCESSION & EXIT PLANNING WHITEPAPER Insurance...

BUSINESS SUCCESSION & EXIT PLANNING WHITEPAPER

Insurance Broking

FEBRUARY 2016

There are a number of key trends which owners

of Insurance Broking Businesses can focus on to

be successful, this Whitepaper focuses on recent

developments in Mergers & Acquisitions, valuation,

prominent risks and opportunities, with special reference

to use of an Employee Share Ownership Plan as a

Business Succession & Exit Planning tool.

| Insurance Broking Whitepaper February 2016


Succession & Exits in Australia

Baby BoomersThe Baby Boomer generation in Australia are the 5.5 million people born directly after the Second World War and before 1964. The youngest Baby Boomer is 50 today.

On average, an Australian Baby Boomer business owner has 80 – 90% of their wealth tied up in a private business and related assets, 48% expect to transition out of ownership of their business in the next 5 years and 76% in the next 10.

In 2011, the first Baby Boomer turned 65, as a group they are turning 65 at a rate of 5,000 per week. These numbers accelerate out to 2029, when the birth rate finally slows down.

In 2013, the State of Owners Readiness Survey conducted by the Exit Planning Institute indicated that 49% report having no transition plan at all and a further 34% report having a plan that was neither documented nor communicated.

All of this adds up to a systemic problem, in that many private businesses will be looking to exit in a relatively short space of time, and those who have neglected to plan for succession and exit are unlikely to be successful.

Succession Plus focuses on the Insurance Broking Business industry in this Whitepaper. The space has seen tremendous change and in particular acquisition activity and now is an opportune time to reflect on your options if you are an owner of an Insurance Broking Business.


$58 billion general insurance industry

$13 billion Insurance Broking

Business industry

Insurers compete

directly for customers

(<10%)

The Insurance Broking Business industry is made up of the approximately 3,000 firms that act as agents in selling insurance policies to business and retail customers, on behalf of insurers. Industry participants earn commission income, mostly as a percentage of the premium of insurance policies sold. They also earn fee income for risk management consulting and claim assessment and adjustment services.

According to IBISWorld, despite fairly strong industry revenue growth over the past five years, insurance brokers face intensifying competition from underwriters and banks. Underwriters are investing in online sales capabilities and new sales channels such as bancassurance, where insurance is sold through partnerships with banks. These efforts aim to reduce insurance providers’ reliance on agents and brokers, and minimise their commission expenses. Brokers have successfully guarded their distribution share by providing knowledge-intensive services to complement their traditional insurance policy sales and by focusing on more profitable markets such as commercial clients. This new focus by brokers is expected to continue, as direct competition from insurers intensifies.

Industry size

Insurance broker businesses in Australia

2007

3,038

2,985

2008

2,930

2009

2,959

2010

2,962

2011

2,967

2012

2,972

2013

2,986

2014

2,935 2,936 2,930 2,924 2,920 2,919 2,915

2015 2016 2017 2018 2019 2020 2021


Industry performance

According to Macquarie Bank’s Insurance Broking Pulse Check from January 2016, the following key trends prevail in the industry today. A high performer is considered one with profitability of 30% or greater of revenue. It is easy to suppose a correlation between size, staff development and financial performance.

2

Insurance broking pulse checkJanurary 2016 key findings

Profit. 75% of firms posted EBITDA margins of 10% or more in FY2015, an impressive result in a tough operating environment. Encouragingly, only 6% reported margins under 1%, suggesting that most firms remain profitable and well positioned to ride out difficult market conditions.

Mergers and acquisitions. Industry consolidation is continuing, indicating that many firms see scale as a key driver in achieving further growth and business efficiency.

Outlook. The vast majority of respondents expect conditions to improve next year, with 86% forecasting a profit increase, four points higher than in 2013. New client growth is expected to be overwhelmingly the most important profit driver, while only one in five forecast hardening premiums to positively impact profit.

Profit margins

Willing buyers have eased, while sellers have increased

Most expect profits to rise between 1% and 19%

2011

2013

2015

3%

14%

32%

23%

19%

9%6%

10%

20%

30%

19%

15%

6%

19% 20%

23%21%

11%

<1% 1-9% 10-19% 20-29% 30-39% ≥40%

28%

24%

31%

7%

6%

10%

14%

22%

16%

51%

48%

43%

Overall 2011

Overall 2013

Overall 2015

None of theseA willing seller A willing buyer or sellerA willing buyer

Increase30% or more

Increase20-29%

Increase 10-19%

Increase 1-9%

No changeDecrease 1-9%

2011

2013

2015

7%10%

29%

38%

9%

3% 3%

8%

28%

43%

13%

2%

6%9%

31%

40%

10%

3%

Decrease 10-19%

1% 1%

2011 2013 2015

Increase 84% 82% 86%

No change 9% 13% 10%

Decrease 4% 3% 4%

2011 2013 2015

<10% 17% 16% 25%

10-29% 55% 50% 43%

≥30% 28% 34% 32%

ib-pulse-check-executive-summary-v5.indd 2 18/01/2016 4:24 pm

Small Insurance Broking Businesses

Medium Insurance Broking Businesses

Large Insurance Broking Businesses

Staff 0 – 9 10 – 19 20 – 29

Revenue 66% of this group had increased revenue in 2015

72% of this group had increased revenue in 2015

72% of this group had increased revenue in 2015

Margins 28% were in the high performer category

36% were in the high performer category

40% were in the high performer category

Forecast 57% forecast 10%+ growth in profit year on year

36% forecast 10%+ growth in profit year on year

10% forecast 10%+ growth in profit year on year

Staff development

57% offer their staff development programs




Industry forecast

While the Insurance Broking Business industry did suffer declines in the years immediately subsequent to the Global Financial Crisis, revenues have recovered and IBISWorld predicts stable growth out to 2021. Consistent with findings explored later in this report, the number of businesses in the industry is expected to decline, even though the sector can expect modest expansion – owing largely to a movement toward consolidation.

Confidence levelsAccording to IBISWorld, the Insurance Broking Business Industry is expected to grow at 2.3% per annum for the next five years, down from 2.5% per annum in the period 2011-16. This slowed growth will be driven by the continuance of outsourcing of insurance related services and changes to demographics within Australia. Whilst brokers face competition from insurance firms selling directly to customers, the public perception of insurance brokers being impartial has led to an increase in brokers share of insurance policy distribution and an expansion of their risk consulting and advisory services.

Industry revenues (in $m) - 2007 to date

Annual industry revenues growth - 2007 to date

2007

$10,

897

$10,

842

2008

$10,

502

2009

$10,

744

2010

$10,

777

2011

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2.07%

1.03%

3.51%

1.70%

2.42%

1.68%

2.50% 2.59% 2.34%

2010201920082007

0.31%

4.03%

2.30%

-3.14%

-0.50%

$11,

211

2012

$11,

443

2013

$11,

561

2014

$11,

967

$12,

170

$12,

464

$12,

674

$12,

991

$13,

328

$13,

640

2015 2016 2017 2018 2019 2020 2021


General insurance industry

Traditionally, the insurance market is broken down into three overarching sectors, general, health and life. General insurance (anecdotally referred to as commercial insurance) makes up 34% of the $170bn per annum industry and is the primary focus of this Whitepaper.

Australian market $58bn per annum.

Major players Allianz, IAG, QBE and Suncorp are the largest among about 110 industry participants.

Overview The General Insurance industry provides protection for individuals, households and businesses from the financial loss associated with events such as car accidents, floods, break-ins and malpractice.

Products • Motor vehicle • Home • Reinsurance• Fire and ISR • Public and product liability • Professional indemnity • Employers’ liability • Directors & Officers• Other direct insurance

In 2008, the Global Financial Crisis resulted in a sizeable contraction in the industry. IBISWorld tips industry revenues to return to pre-GFC levels in 2017.

2007 $58.9bn 2012 $56.3bn 2017 $62.3bn

2008 $47.3bn 2013 $56.3bn 2018 $62.4bn

2009 $46.6bn 2014 $58.2bn 2019 $65.1bn

2010 $56.5bn 2015 $57.8bn 2020 $67.3bn

2011 $55.0bn 2016 $57.9bn 2021 $68.9bn


Industry trends

Macquarie Bank’s Insurance Broking Pulse Check from January 2016, nominated three key industry trends, which are intimately interlinked:

1. SpecialisationAs the marketplace and the Insurance Broking Business industry becomes more specialised, brokers will increasingly seek to focus on a particular client segment or risk type.

2. Emerging risksNew risk types have the potential to generate significant growth to brokers and insurers who are well positioned to respond to emerging demand. They include cover for cyber risks and other digital intangibles, such as data protection, privacy and reputation risk, and data related business interruptions.

3. Industries of the futureStructural change in the Australian and global economies will also see specialist industries emerge and grow, potentially including green energy, digital finance, and significantly enlarged aged care and healthcare sectors.


Emerging Business Risks

Business risk is an interesting issue for the insurance broker. Risk can be either an opportunity or a threat.

Opportunity 1: Cyber riskAon’s H1 Market Update report suggested that for the first time, cyber risks have moved into the top 5 business risks, owing to the rise of cloud, digital and mobility as grander social megatrends.

“At the end of Q3 last year the Australian market was worth AUD 8-10 million, as compared to the much more sophisticated US market at almost USD 2 bn. However, the market in Australia is growing rapidly and estimates see the market doubling by the end of 2015.”

Opportunity 2: Industries of the futureMacquarie Bank reports that structural change in the Australian and global economies will also see specialist industries emerge and grow, potentially including green energy, digital finance, and significantly enlarged aged care and healthcare sectors.

These industries will contain both high growth potential and specialised risk profiles distinct from traditional industries, giving Insurance Broking Businesses an opportunity to expand, specialise or both.

Threat 1: DisintermediationIn economics, disintermediation is the process of removing middlemen in a supply chain.

The advent of the internet has given rise to “virtual marketplaces” where traditional industries once dominated. In this respect, disintermediation could be thought of as a form of digital disruption.

Wholesalers and retailers are often thought of as the most at risk businesses in this new competitive climate. However, intermediaries, such as insurance brokers are also exposed. In fact, the number of Insurance Broking Businesses is forecast to decline gradually out to 2021 (IBISWorld).


A growing trend is the prevalence of online Insurance Broking Businesses. iSelect, an online health insurance marketplace and featured prominently in television advertising, it is a classic example of digital disruption and disintermediation in action.

Emerging Business Risks (continued)

iSelect listed in Australia in June 2013 at an issue price of $1.85. General insurance broking does not have an equivalent to iSelect, because general insurance products are less commoditised in nature and business risk is more diverse. In fact, iSelect’s share price has tumbled 53% since listing.

Threat 2: Internet GiantsAccording to Michael Lyman, global managing director, insurance industry practice with Accenture: “Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants.”

The threat they pose was confirmed by a global survey of more than 6,000 insurance customers conducted by Accenture in 2013: 67 percent said they would consider purchasing home, auto and life insurance from businesses other than insurers, with 23 percent saying they would consider buying from an online service provider such as Amazon or Google.

1.8

1.6

1.4

0.8

1.0

1.2

Jan 2014 Jul 2014 Jan 2015 ul 2015 Jan 2015


Mergers & Acquisitions: Activity

True of any mature industry sector, consolidation through mergers and acquisitions is increasing in insurance broking in Australia and New Zealand. In Australia, the 4 biggest players control 70% of the total revenue.

This consolidation has been driven by a few, large, key players, namely Steadfast Group, AUB Group/IBNA (formerly Austbrokers).

Also, many Insurance Broking Businesses have moved away from revenue and toward profitability as the number upon which valuation is based.

According to Macquarie Bank’s survey, 39% of high profit firms described themselves as willing buyers.

Steadfast Group AUB Group IBNA Limited

Market share 40.3% 22.2% 12.3%

Key facts Founded in 1996 with 43 brokers to reduce overheads and centralise services. Began taking strategic equity stakes in network-brokers (which now number over 300) and listed on the ASX in 2013.

Founded in 1985 (as Austbrokers) to pool the resources of small, independent brokers. It adopts an owner-driver strategy in that its strategy involves acquiring a stake in member-brokers and assisting with business development and additional services such as risk consulting.

Austbrokers listed on the ASX in 2005.

Founded in in 1994, IBNA is one of the largest independently owned insurance brokers network in Australia, consisting of 80 members. The association is in a joint partnership with Austbrokers and provides members with negotiating powers and product offerings.

IBNA is an unlisted public company.


Steadfast Group AUB Group

Acquisitions As part of its IPO in 2013, Steadfast Group made strategic investment in or outright acquisitions of 58 Insurance Broking Businesses, two underwriting agencies, and two ancillary services businesses, spending over $400M with over $110M remaining available for acquisitions.

Pre-IPO, it had made investments in or had acquired 4 Insurance Broking Businesses.

Made 6 acquisitions for a total of $70M in 2013, compared with Steadfast Group’s $400M.

It reflects a growth strategy that includes income diversification toward non-broking sources.

Mergers & Acquisitions: Activity (continued)


Mergers & Acquisitions: Valuation

Pitcher Partners assembled a sample of deals from 2013 to 2014. It reflects on average, an 8.8x EBITDA multiple, which when compared with the ASX’s long term average PE Ratio of 13.73 suggests the space has been highly acquisitive, and multiples paid above average when compared to multiples paid for privately held companies in other industries.

Date Acquirer – target Enterprise value

EBITDA multiple

April 2015 Steadfast – IC Frith $32M 7.0x

December 2014 AJ Gallagher – Instrat $30M Not publicly available

August 2014 Steadfast – Ausure $29M 7.1x

July 2014 Austbrokers – Nexus and Asia Mideast

$8M Not publicly available

June 2014 AJ Gallagher – OAMPS $1,160M 10.9x

February 2014 Austbrokers – Procare Group $18M Not publicly available

August 2013 Steadfast – NCI Brokers $30M 8.8x

August 2013 Steadfast – GWS Network Insurance Brokers

$22M 7.6x

August 2013 Steadfast – Regional Insurance Brokers

$87M 10.7x

August 2013 Steadfast – Brecknock Insurance Brokers

$25M 11.4x

August 2013 Steadfast – Mega Capital $21M 7.8x

June 2013 Austbrokers - InterRISK $20M 9.1x


MarshBerry, a prominent consulting firm offering services exclusively to Insurance Broking Businesses in the US, offers that there are 3 types of exit options for owners of Insurance Broking Businesses: selling internally, selling externally and maintaining the status quo.

The diagram above is one Succession Plus uses with clients when helping them design a Business Succession & Exit Plan.

MarshBerry would consider selling to other shareholders, employee share plans and internal sales or management buy-outs, all forms of internal sales and database sales, partial sales, trade sales, private equity/venture capital, sale to listed companies and listing all forms of external sales.

MarshBerry recommends that in Insurance Broking Businesses a plan should be created that outlines how ownership will transition, how books of business will transition and how management responsibilities will transition. According to Marsh Berry’s 2014 Market & Financial Outlook Survey:

• 56% of [Insurance Broking Businesses] agencies have a plan to transition the books of retiring producers, with the average transition period taking 3.25 years

• 40% of agencies have identified the next CEO/President

• 21% of privately-held agencies offer stock ownership.

42

There are a number of ways to exit your business that can achieve a win-win situation. The graph below shows the options available to you and their relative time, complexity and effort to achieve. As a general rule of thumb, as the complexity and effort increases, you are rewarded with a higher price. With all options you will need to plan to reach the best outcome, and all options will require you to get tax advice well in advance.

Transfer of ownership between family members or friendsA business owner may transfer or sell part or all shares in the business to family members or friends. This is the least complex in terms of documentation, legal requirements and process, but certainly has its own challenges.

Transferring ownership of a business from one generation to the next within a family is the ultimate management challenge, but the Australian Family and Private Business Survey 2010 (RMIT University), reported over half of business owners intended to keep the business in continuous family ownership.

But unfortunately barely 30 per cent of family businesses survive into the second generation, and fewer than 15 per cent endure into the third (Planning for Succession, HRManager.com.au).

Effective succession planning is especially important within family businesses since they come with additional challenges and stressors particular to the family. When developing a succession plan to family members, we take account factors such as;

• relationships between family members

• health of family members

• each family member’s interests and skill levels

Com

plex

ity a

nd e

ffort

Potential sale price/value

IPO (listing)

Private equity/venture capital

Strategic sale & sale to listed co.

Trade sale

Internal sale or management buy-out

Employee share plan

Family and friends

Partial sale

Sell to other shareholders

Sell database only

step

7

40

Exit strategies


In many respects, the Australian market trends are reflective of US market trends. While Mergers & Accquisitions activity is currently buoyant, aided by a general accumulation of available capital for investment in the Private Equity market (“overhang”), MarshBerry still recommend to Insurance Broking Businesses: “with the weighted average owner’s age increasing to 54.3 years, it is imperative that agencies that want to perpetuate internally give candidates an opportunity to start acquiring stock early while the benefit of taking on debt is more feasible.”

55.0

54.5

54.0

53.5

53.0

52.5

52.0

51.5

51.0

50.52007

*Through 6/30/2014

Weighted Average Owner Age

2008 2009 2010 2011 2012 2013 2014*


The graphs above are from Macquarie Bank’s 2013-14 Insurance Broking Benchmarking Report.

In the Australian Insurance Broking Business industry, there is equal preference among owners for family succession, for employees taking equity in the business and for selling to another firm. Of the businesses lacking a succession plan (primarily the smaller businesses) the overwhelming rationale is that is it not yet perceived as a priority.

28 2013-14 Insurance Broking Benchmarking Report

Valuing your businessOur survey reveals a significant shift in the way broking businesses are being valued, with a renewed focus on profitability over revenue as a valuation tool. Forty-four per cent of brokers now value their business as a multiple of adjusted profit, up from 24 per cent in 2011. [Figure 26]

Figure 25. Succession planning details

Figure 26. Valuing the business

44%OF BROKERS NOW VALUE THEIR BUSINESS AS A MULTIPLE OF ADJUSTED PROFIT

NATURE OF SUCCESSION PLAN WHY NO SUCCESSION PLAN?

No

one

wan

ts to

bu

y m

y fir

m

Too

hard

7%

Oth

er

14%

No

succ

esso

rs

16%

Too

busy

18%

Not

a p

riorit

y

52%

Not

a p

riorit

y

30%

HOW IS IT VALUED?

2011 2013

Other

7%5%

A multiple of overall revenue

69%

51%

A multiple of adjusted profit (EBITDA)

24%

44%

0%

Multiplier of revenue Multiplier of EBITDA

Median 2.0x 5.5x

Range 0.8x – 2.5x 1.9x – 7.5x

Clo

se d

oors

3%

Oth

er

13%

Fam

ily s

ucce

ssio

n

25%

Sta

ff to

acq

uire

eq

uity

29%

Sel

l to

anot

her f

irm

30%

27

My

role

with

the

com

pany

afte

r the

sal

e

My

clie

nts

are

look

ed a

fter

Cul

tura

l Fit

Rep

utat

ion

of th

e pu

rcha

ser

My

staf

f are

look

ed

afte

r

Pric

e

2011 2013

22%17%

28%

38% 40%44%

76%

58% 59%65%

53%

67%

Figure 23. The important things as a seller

Figure 24. Succession planning by size

3+55+42+A42%

3

55%

LOWREVENUE

Mergers, acquisitions and valuations

5+65+30+A30%

5%

65%

MEDIUMREVENUE 3+85+12+A12% 3

85%

HIGHREVENUE

No Don’t know Yes

Exit strategies

Our recommendation is always, it’s never too early to plan Business Succession & Exit. There are many factors to consider and the more time business owners have on their side the more likely it is that a successful transition and exit can occur. The old adage, that time-pressured decision making is usually poor, rings true in our experience.

One of the more recent exit options is an Employee Share Ownership Plan. We will explore use of Employee Share Ownership Plans as a means to lift employee engagement (and thereby profitability) but also as an ownership succession tool.


Business Succession & Exit Planning

Succession + Advisory is our customised advisory program running over a period of 12 to 24 months. During the program a project manager is assigned to each client and they will work to review strategic exit options and advise the most appropriate strategy given the client’s time frame and financial position.

7

This book takes you through 21 steps to exiting your business over five stages:

1 Identifying value

2 Protecting the value

3 Maximising value

4 Extracting value

5 Managing value.

Each stage may take months or years depending on your personal goals, your situation, your business readiness and your industry.

BUSINESS SUCCESSION AND EXITPLAN

Stage One:Identify Value

STEP 1 : Goals and Outcomes

STEP 2 : Fact Find

STEP 3 : Stage One Report – INSIGHTS

Stage Two: Protect Value

STEP 4 : Financial Planning

STEP 5 : Unplanned Events

STEP 6 : De-Risking

Stage Three: Maximise Value

STEP 7 : Exit Options

STEP 8 : Strategic Planning Business Model

STEP 9 : Strategic Financials

STEP 10 : Systems and Procedures

STEP 11 : Marketing and Sales

STEP 12 : Corporate Governance

STEP 13 :

STEP 14 : Peak Performance Trust

STEP 15 : Management Succession

Stage Four: Extract Value

STEP 16 : Tax Planning

STEP 17 : Documentation

STEP 18 : Liquidity Event

Stage Five: Manage Value

STEP 19 : Ongoing Investment Planning

STEP 20 : Asset Protection

STEP 21 : Estate Planning

7

wha

t is

succ

essi

on p

lann

ing?


Employee Share Ownership Plans

as a succession tool

In our book, Enjoy It, we explore the reasons why Employee Share Ownership Plans (ESOPs) are very popular in the United States, UK and Europe but have not yet gained momentum in Australia despite legislative changes and evolution since the 1970s.

ESOPs benefit private businesses by:

• Funding an exit

• Delivering improvements in financial performance

• Achieving business continuity after the owners’ exit

• Allowing a tax effective transfer of ownership.

In the United States, nearly half of all ESOPs are used by private firms to buy out an owner. It also positions the business as a more competitive employer and therefore attracts and retains key staff. Half of business owners surveyed said securing the right talent/finding competent staff was the number one issue while retaining them was ranked at 16%. The following diagram shows statistics on ESOPs in the US and the growth in the number of ESOPS since they were introduced around the 1980s.

What do ESOPs look like?Currently, there are about 10,900 ESOPs and equivalent plans employing more than 11 million U.S. employees. ESOP companies are incredibly diverse: there are ESOPs in almost every industry, ranging from just a few employees to over 150,000, spread throughout the nation. This infographic provides a brief summary of what the ESOP community looks like.

NUMBER OF EMPLOYEES

YEAR THE ESOP STARTED

MOST COMMON INDUSTRIES

Manufacturing

Banking

Construction

Engineering1980 or before

12%

1981 - 1990

21%

1991 - 2000

34%

2001 - present

33%

Over 1000

501-1000

301-500

101-300

51 -100

Up to 50

21%

38%

22%

9%4%6%


The Peak Performance Trust

A Strategic Approach to RemunerationTransforming employees into committed shareholders of your business involves developing a remuneration system that reflects your organisation’s philosophy, objectives and values. The way that you reward your staff members influences their thinking, behaviour and performance.

For example, a company that pays bonuses or commissions to individuals for monthly or quarterly results encourage employees to focus on short term individual results, and not on the longer term business strategy. If the reward is capped, staff may hold and roll over sales from one period to the next rather than doing more than is necessary to achieve each bonus.

Employee remuneration is about more than just money – it is about motivation and reward, which contribute to increased levels of productivity and morale. A strategically planned remuneration system helps to align your employees’ personal and financial goals with your business goals and encourages ownership thinking.

According to a large-scale University of Pennsylvania study, 66% of businesses reported improved morale as a result of employee share ownership, 36% report higher productivity, 33% have reduced labour turnover and 23% report improved profitability. Further, 57% report no disadvantages, such as dilution of stock value and reduced control of the business.

Helping business owners secure the future they deserve

Begin with the end in mind | Page 3

The ladder to equity

Step Nature1) Employee Salary / wage / hourly rates etc. This is where most employees sit

(and stay).

2) Income model The next step up the ladder is to boost that income and this is quite com-mon – we often see companies paying bonuses, commissions on sales, incentives etc. to increase an employee’s income.

3) Profit share Most equity plans begin with this simple step and in fact many end at this step – simply providing a share of profits to employees is a great additional incentive as they are directly rewarded as a result of the financial performance of the company in the same way that a business owner typically would be.

4) Equity Whilst there are many equity plans available, our Peak Performance Trust provides a formal structured mechanism to incorporate stages three, four and five into any business succession plan - this allows employees to transition into an equity ownership position within the business they work for

5) Control Often this step is never utilised though on occasion has substantial benefits in terms of succession not only of business management but also owner-ship. Ultimately control means that employees can be transitioned through the earlier four stages and end up in a position of control – this may be that they take over general management or become CEO of the company, it may be that they end up with a seat on the Board of Directors at some future date. However this step is not to be rushed.

160128_SP_planning_day_v10_PRINT.indd 3 28/01/2016 6:12 pm

“ The proper man understands equity, the small man – profits.” Confucius, 571 – 449 BC

“Both financial services and property management referrals from employees participating in this scheme increased at a higher level than before. I put this down to their seeing value in contributing to the bottom line because they will share in the profit.”

WAYNE DOWLING, Licensee LJ Hooker Commercial Central Coast: winner of the Australian ESOP of the year award in 2010.


The Peak Performance Trust

Over the last ten years we have been utilising an Employee Share Ownership Plan (ESOP), which we designed specifically for SME business owners called the Peak Performance Trust.

A structure specifically designed to encourage your employees to think and act like business owners1. A profit share model is introduced where profit is benchmarked and a portion of “improved profit is

contributed to fund the ESOP.

2. Employees are invited to participate in a separate trust called a Peak Performance Trust. Employees must agree to the rules of the PPT to participate, and this includes discounting provisions for departing the business early, mandatory cashing in of units in the PPT by moving on to another firm or retirement, and forfeiture rules where exceptional.

3. Over time, the company pays the profit share into the PPT, and that money is used to acquire shares from the existing owners.

4. Each year, the company is valued and units are allocated in the PPT to employees based on metrics such as salary, longevity and performance.

5. Because the PPT is a shareholder along with the original owners, it enjoys access to dividends, which accelerates the ownership take-up rate.

Ostensibly, the aim of the PPT is to drive employee engagement and create a self-funding mechanism whereby employees take up equity positions gradually, without prejudicing high performers without capital to buy immediately, and without the administrative burden of bringing in minority shareholders. Our PPT structure has won the Australia wide Employee Share plan of the Year award twice in 4 years.


Research

The following reports are topical in the Business Succession & Exit Planning discussion around insurance broking businesses:

www.morganmarkets.com

Australia Equity Research 13 January 2015

2014 J.P. Morgan Taylor Fry General Insurance Barometer

Direct Underwriters, Reinsurers and Brokers

Insurance

Siddharth Parameswaran AC

(61-2) 9003-8629

[email protected]

Alvin Liu (61-2) 9003-8622

[email protected]

J.P. Morgan Securities Australia Limited

See page 185 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

This is the result of a joint research effort between J.P. Morgan and Taylor Fry.

Taylor Fry Kevin Gomes (61-2) 9249-2918

[email protected]

Sharanjit Paddam (61-2) 9249-2914

[email protected]

Joshua Jaroudy (61-2) 9249-2934

[email protected]

____________________________________

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

7 Industry Outlook

10 Industry Life Cycle

12 Products & Markets12 Supply Chains

12 Products & Services

13 Demand Determinants

14 Major Markets

15 International Trade

16 Business Locations

18 Competitive Landscape18 Market Share Concentration

18 Key Success Factors

18 Cost Structure Benchmarks

20 Basis of Competition

21 Barriers to Entry

21 Industry Globalisation

22 Major Companies22 Austbrokers Holdings Limited

22 Steadfast Group Limited

23 IBNA Limited

25 Operating Conditions25 Capital Intensity

26 Technology & Systems

26 Revenue Volatility

27 Regulation & Policy

28 Industry Assistance

29 Key Statistics29 Industry Data

29 Annual Change

29 Key Ratios

30 Jargon & Glossary

IBISWorld Industry Report K6420Insurance Brokerage in AustraliaOctober 2015 Tommy Wu

Going for broke: Economic recovery aids growth, allowing expansion and higher prices

www.ibisworld.com.au | (03) 9655 3881 | [email protected]

Insurance broking pulse check

January 2016 key findings

What’s the state of play in insurance broking today? Which firms are outperforming — and why? And how does your business compare?

To answer these and other key questions, Macquarie Business Banking recently conducted a short pulse check survey of insurance broking firms around the country. A unique snapshot of a changing industry in a challenging market, our pulse check builds on the insights from our benchmarking studies in 2011 and 2013 — and paves the way for our next in-depth benchmarking survey in 2016.

The marketRevenues rise despite the challenges

Our latest pulse check confirms that the insurance broking market remains highly competitive, with softer premiums putting revenues under pressure. Yet the research also shows that most firms have remained resilient, with the majority well positioned to capitalise on better conditions over the next 12 months.

Revenue. 69% of firms achieved revenue growth in FY2015, down from 83% in FY2013. On the flipside, 18% saw revenues fall, more than twice the proportion reported in our 2013 survey.

9%8%

33%36%

6%7%

1%

6%9%

25%

43%

9%6%

2%

7%7%

21%

34%

13%16%

2%

Increased30% or more

Increased20-29%

Increased 10-19%

Increased 1-9%

No changeDecreased 1-9%

Decreased 10-19%

Decreased 20-29%

2011

2013

2015

Revenue growth

2011 2013 2015

Increased 86% 83% 69%

No change 6% 9% 13%

Decreased 8% 8% 18%

Australian Insurance

Market Update 1H

2015

Risk. Reinsurance. Human Resources.

ProspectusSteadfast Group Limited

ABN 98 073 659 677

Joint Lead Managers

Executive Summary 1

Building on success

2013-14 Insurance BrokingBenchmarking Report

Australia’s insurance sector – Brokering deals to the full

2015

2014 2015MARSHBERRY

MARKET & FINANCIAL OUTLOOK


References

The following reports are topical in the Business Succession & Exit Planning discussion around Insurance Broking Businesses:

Source Reports

IBISWorld Industry Report K6420: Insurance Brokerage in Australia (October 2015) Industry Report K6322: General Insurance in Australia (October 2015)

J.P. Morgan 2014 J.P. Morgan Taylor Fry General Insurance Barometer (January 2015)

Available online at: http://www.taylorfry.com.au/publications/misc/2014_General _Insurance_Industry_Barometer_Report_for_Media.pdf

Aon Australian Insurance Market 1H: 2015

Available online at: http://www.aon.com.au/australia/attachments/thought-leadership/aon- insurance-market-update-1h-2015.pdf

Macquarie Bank Insurance broking pulse check: January 2016 key findings (January 2016) Building on success 2013-14 Insurance Broking Benchmarking Report (January 2014)

Pitcher Partners Australia’s insurance sector – Brokering deals to the full

Available online at: http://www.pitcher.com.au/sites/default/files/downloads/insight_broker_ 150901.pdf

Steadfast Steadfast Prospectus (July 2013)

Available online at: http://www.asx.com.au/asxpdf/20130801/pdf/42hfdscjxz87qd.pdf

West, Craig Enjoy It (2013)

MarshBerry Market and Financial Outlook (2014)

Available online at: http://www.marshberry.com/wp-content/uploads/2014/12/MarshBerry-Market-Financial-Report_2014_2015.pdf

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