Successful Successions

Three brokerages undergoing succession reveal how they managed to execute the plan and keep the business growing

Millions of Canadians are approaching retirement in the coming years. In fact, one in five will be aged 55 to 64 by 2015, according to Statistics Canada. While some brokers may be preaching Freedom 65, others are ready to hand over the reins or sell their business now.

Canadian Insurance Top Broker spoke to brokerage owners who are undergoing such a transition. Each had a different story to tell. However, whether they were selling or transferring the business to a family member, every owner had a few common goals: to ensure their business continues to grow, provide great client service, and retain staff.

Sinclair Cockburn Financial Group

Established: 1953 by Ken Sinclair and Gord Cockburn

Location: Toronto, Ont.

Staff: 70

Annual Premiums Written: Excess of $70 million

Succession Plan: Recently acquired by HKMB HUB

Originally a simple P&C insurance brokerage, Sinclair Cockburn Financial Group (SCFG) experienced sustained growth through a series of smaller acquisitions, including construction and engineering accounts.

The torch was passed to the second generation, and product and service offerings expanded further to include life and group insurance, mortgage brokering, mutual fund sales and mortgage fund management.

Rapid growth followed during the late 1990s and early 2000s. This put SCFG on the radar of larger companies, making it the target of many unsolicited offers. These included merger-type transactions with other brokers and outright purchases by private equity firms, insurance companies, and insurance brokerages from Canada and the US.

“It was becoming apparent that the value of the brokerage and the timing of a liquidity event for the majority shareholders were going to preclude a sale to anyone other than a purchaser with deep pockets,” says Jim Grieve, president of SCFG.

Reason to Sell: The shareholders mutually agreed that their preferred succession plan was to sell the brokerage to a financially strong company, but keep it in the independent broker channel. HKMB HUB stuck out among all other offers as the logical choice.

“Certainly the familiarity with Rick Gulliver, Jim Barton and the four partners at HKMB over the years gave the shareholders a trust and comfort factor right at the onset,” says Grieve.

As negotiations progressed, it was evident HKMB HUB offered a proven business model that encouraged entrepreneurialism and permitted the principal shareholders to remain employed, albeit in a reduced capacity, adds Grieve.

“More importantly, HKMB HUB was able to convince the shareholders it would not only guarantee the continued employment of the brokering staff, but would also provide SCFG customers with a broader range of value-added services.”

Deal Specifics: The acquisition by HKMB HUB was an 80/20 cash/equity transaction. Also, HKMB HUB made equity available to certain key employees of SCFG, and provided internal financing for those requiring it.

Success Factor: The completion of the deal allows for a smooth transfer of control. Also, principal shareholders can exit on a timeframe not bound by financial constraints, and with minimal disruption to staff or customers, says Grieve.

“The folks at HUB have gone to great lengths to make the staff feel welcomed and appreciated. We believe this approach will be a major contributing factor to the success of the transactions from all perspectives.”

Challenges: The biggest challenge was the stress on staff and shareholders in dealing with a quick closing, and thorough audit process while maintaining their day-to-day duties. These items took about two weeks to complete, says Grieve, but were helped in part by HKMB HUB’s experience and expertise in acquisitions.

Parting Words: “Consider that moment in the future when you hand over the keys to your brokerage,” advises Grieve. “Will you feel that you did the right thing for your family, your staff and your customers? Will you have comfort in knowing the brokerage will continue to enjoy the reputation you worked so hard to build? If you cannot answer yes to these questions, you may need to reconsider your succession plan because, God willing, you are going to have to live with yourself for a long time after you leave the brokerage business!”

Wilson Insurance Ltd.

Established: 1930 by Hedley Wilson
Fredericton, NB
Annual Premiums:
Not disclosed
Succession Plan:
Daughter, Heather Wilson, is the third generation to take over the business

With roots dating back to the 1930s, Wilson Insurance Ltd. is a family-owned brokerage specializing in home, auto, life, health and business insurance.

The Wilson Insurance Team L-R: Lisa Horsman, Mike Toole, Heather Wilson, David Wilson, Greg Dunlap, Kerry Atkinson

Back then, it was a modest business established and operated solely by Hedley Wilson. By the mid-1950s, Wilson Insurance had grown to 10 employees.

But it wasn’t until 1965 when Hedley’s son, David, joined the brokerage that business started booming. David transformed the company from a simple brokerage to a diverse sales organization, employing 47 people through two locations in Fredericton, NB.

Heather Wilson, David’s daughter, joined the company in 2001, and in November 2010 she took over as owner.

“It was always in the back of my mind that one day I would join our family business,” says Heather, owner of Wilson Insurance.

David remains the chairman and treasurer, and acts as a mentor to the executive team. He manages six client accounts but plans to transfer them to a new team.

Reason to Sell: The succession plan was a natural progression, according to David. He felt he was ready for retirement and the idea had always been that Heather would take over the brokerage.

“The time is right for the next generation to take on the reins of the business,” says David, chairman and treasurer of Wilson Insurance. “For about a year now, we have been talking about the process.”

Deal Specifics: Today, there are four shareholders that own 39% of the company. Heather and David remain the majority owners with 61% of the shares (common and preferred).

To transfer the business to his daughter, David planned through his estate. The common shares are under Heather’s name, and preferred shares are under David and his wife’s names. The latter will eventually be liquidated so that only the common shares remain, leaving Heather the majority owner.

Success Factor: “Keeping the brokerage control in the family maintains the legacy that began over 80 years ago,” says David.

It also preserves the Wilson Insurance brand, which is recognized within the community, he adds. “In recent years, the company has developed expertise among our people to make the business continue to flourish and grow in what seems an ever-increasing competitive environment.”

Challenges: There will be times when business partners have differing philosophies, but when it’s family, it becomes personal and therefore harder to deal with, according to David and Heather.

“We deal with this through individual and executive team consultation,” says Heather. “Our core values of integrity and relationship with open and honest communication guide us to agreeable resolution.”

Another obstacle that comes with family ties in business is that meetings may happen outside the office, which excludes the remaining team members.

“We try to ensure that anything we’ve discussed is brought up to the management team,” says David. “We have weekly and monthly meetings to keep the lines of communication open.”

Parting Words: “The biggest failure of family succession is due to lack of foresight in planning. All too often, the family owner simply opts for the cash-out to the high bidder. There is nothing wrong with that approach as long as that is the plan for your life’s work. But in order for succession to work, you must have the planning done, and as the owner be satisfied that your successor(s) have the passion to carry forth into the next generation,” says David.

Hunter McCorquodale Inc.

Toronto, Ont.
Annual Premiums:
Not disclosed
Succession Plan:
Recently acquired by Simmlands (with funding provided by Jones Brown)

Almost 15 years ago, Ken Hunter and Steve McCorquodale joined forces to create Hunter McCorquodale Inc., a life and health insurance wholesaler and retailer. The company’s main goal was divided into two parts; first to provide services to life and health advisors who had a tough time placing risk in the regular market, and second to provide and sell unique solutions for group benefit packages by combining individual and group disability coverages.

Hunter McCorquodale Inc. L-R: Richard Dowling, Ken Hunter, John Barclay, Steve McCorquodale, Mark Terrill

Initially there were four full-time staff, but as business grew, two more employees were added and services such as underwriting were outsourced.

Recently, Simmlands acquired Hunter McCorquodale, with funding provided by Jones Brown. The company was operating out of a single location in the Yonge Eglinton Centre in Toronto, Ont., but has since moved the office to the Simmlands headquarters in Toronto’s downtown core.

Reason to Sell: Ken Hunter and Steve McCorquodale had succession on their minds for years, and considered options such as one purchasing the business from the other, finding a successor internally, or selling externally.

After exploring each idea, it became clear there was no one internally who had the available resources or desire to run a company, and neither Hunter nor McCorquodale wanted to buy out the other.

“Steve was ready to retire and I was also ready to create more financial security for myself,” says Ken Hunter, vice president at Hunter McCorquodale. “Also, things have been 100% equal since day one. We wanted that symmetry to continue until the end, so the only option was to sell the business externally.”

In April 2010, they employed a broker consultant who specialized in mergers and acquisitions from Farber Financial Group to scout potential buyers. By July, Simmlands/Jones Brown surfaced as a viable solution.

“We got the sense that they’d already decided they wanted to buy us,” says Hunter. “In particular they were interested in building up the MGA/MGU side of their business.”

Today, Hunter McCorquodale provides a life and disability managing general underwriter (MGU) channel to Simmlands Insurance Services Limited, the managing general agent (MGA) that Jones Brown acquired in 2003.

When asked why a company that specializes in the life and health insurance industries merged with a P&C provider, Hunter says, “They really chose us. Simmlands took the lead. They got us in the door quickly and let us know early on they were interested.”

A key part of the deal was to ensure staff remained in their respective roles. Hunter says Simmlands was able to offer this. “It pretty much closed the door on other options because it became the most attractive deal.”

Deal Specifics: The acquisition was fundamentally a cash deal that closed on September 1, 2010. The Hunter McCorquodale brand will be retained. Ken and Steve continue in their executive roles, but Steve plans to retire soon and will hire a successor to take over his position on the retail side.

Success Factor: The deal provides a smooth transition, meets the goals of each shareholder, and allows the business to continue to grow in the future, says Hunter.

Challenges: One difficult task was ensuring each shareholder’s goals were met. “We had some conflict of interest because Steve wanted to retire, I wanted to work, and our US minority shareholder wanted to provide underwriting services to the firm. We had to find a deal that supported each of these items.”

Also, managing staff was a challenge because they had concerns about their employment. “We had to make sure the staff understood their roles were unchanged, and that this was a positive move because it would mean business growth.”

Parting Words: “Start thinking about your succession plan very early, perhaps even from the beginning,” says Hunter. “It helps using a broker consultant who has experience in negotiations. Also, don’t get wedded to one succession concept or idea. We never planned to be purchased by a P&C business, but we’re all very happy with the way things turned out.”

Advice for Successors

Heather Wilson is the new owner of Wilson Insurance in New Brunswick. She offers these tips to others with plans to take over a brokerage.

Heather Wilson

Heather Wilson

1. Plan well in advance. It is never too early to start your own succession plan. This will ensure a smooth transition and the ability to control a succession plan rather than manage a succession crisis.

2. Seek outside expertise. The last thing you want to do is wake up in the morning and realize you are in charge and there are pieces of the puzzle missing. Skilled outsiders and peers can help you identify shortcomings and can bring fresh new ideas to move the plan forward.

3. Fill your own shoes. You cannot expect to run the company exactly as your predecessor did. You bring great value to the organization so focus on your strengths. Draw on the amazing talents of individuals within your organization.

© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the November/December 2010 edition of Canadian Insurance Top Broker magazine.

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