Entrepreneurship Through Acquisition

Why Insurance Brokerages Are Great Targets for ETA Search

Prefer to watch or listen? Catch the full episode of Search Party with host David Snow, or browse more conversations on the Oberle Podcasts page.

Growing up around insurance in St. Louis

I grew up in St. Louis, Missouri, one of four boys in a suburb of the city. My dad was in the insurance business, and so was his dad, so I was always around it. A lot of my dad's clients were entrepreneurs, and he would come home and talk about the cool things they were doing and the impact they were having on St. Louis and the wider Midwest. Those stories about families who had built great businesses stuck with me.

My dad and my grandfather each had their own insurance agencies. They were entrepreneurs themselves, so there was a seed planted early, even if I did not recognize it at the time. I always thought it would be cool to have an insurance agency in St. Louis and build something here. This is a town where, if you are from here, you just love it and you want to come back. It is a great place to be and to raise kids.

Watching my dad also shaped what I wanted my life to look like. He was not a guy at a big corporation. He ran a small agency, later joined a larger brokerage, and struck a balance I admired between being a business leader and being a great dad.

"I really felt like he struck a great balance between being an entrepreneur and a business leader in St. Louis and also just a great dad. If I could replicate that, it would be really cool." August Felker

Why insurance makes a great search business

When I finally set out to buy a business, I already knew I wanted it to be an insurance agency. A brokerage, or agency, sits between businesses that need coverage and the carriers that provide it. Clients hire us to help them buy insurance: we go to the markets, negotiate, place the coverage, and then service that relationship year after year. As I told my future investors, insurance checks nearly every box a searcher looks for.

"I love insurance. I think it makes for a great search business. Recurring revenue, it's kind of boring, highly fragmented, not crazy difficult to understand, good margins, asset light, all those things you look for." August Felker

The economics are what make it special:

• Recurring, sticky revenue. Commissions renew automatically each year, and client retention runs above 90 percent. People do not like to switch, so if you serve them well, they stay.
• A fragmented market. There are countless small agencies out there, which means plenty of targets for a first-time buyer.
• Not too complex. The business is understandable. You do not need to reinvent a technology to run it well.
• Asset light with good margins. No inventory and no heavy capital requirements, just people, relationships, and recurring contracts.

There is one honest catch. The very thing that makes agencies attractive, that sticky 90-percent-plus revenue, is also what can make them hard to grow. An agency that is not actively winning new business can drift, and growing organically takes real investment in the right people.

How I discovered the search fund model

I went to college in Maine and then moved out to the Bay Area, because I thought it would be a great adventure for a Midwestern guy. My first job was a big corporate role, and I kept thinking, this can't be it. I was not happy and I did not really know what I wanted. Then I got lucky. I connected with a couple of entrepreneurs who had graduated from Stanford Business School and had done a traditional search in the early 2000s, one of the earlier vintages.

They had just bought a third-party logistics business out of a small warehouse in South San Francisco, and they needed someone to help grow it in sales. So I left a comfortable corporate training job in the city and moved down to a warehouse, because I was so inspired by the path they were on. That is where I first heard about the search fund model.

"That's when I first heard of the search fund, and I was like, this is the coolest thing I've ever heard. They were great mentors and great leaders, and I got to be there watching them do the whole thing." August Felker

I probably first heard about the model around 2005, and I knew that was it. That is not uncommon. A lot of people hear about entrepreneurship through acquisition and immediately think, this is what I want to do. I have heard plenty of love-at-first-sight stories in this community, and mine was one of them. When those two partners eventually sold their logistics business to a larger strategic, we started brainstorming about my doing a search of my own. They offered to help me raise money and vouch for me, and I jumped in.

Raising a search fund in the teeth of the recession

My timing was rough. I was 28, I did not have an MBA, and it was 2008 and 2009, so I was fundraising right in the middle of the recession. There were not many searchers back then, we all kind of knew each other, and it was a grind. People were watching the stock market fall while I asked them for a couple hundred thousand dollars, so it took a lot of extra work, maybe three to six months, even with the blessing of two successful searchers behind me.

Those two partners, John and Josh, became my board and my safety net. We operated almost like a trio: I would run the business once we bought it, and they stayed very involved, talking most days and knowing every employee's name. That level of engagement was exactly what I needed as a first-timer.

"They were going to be very involved, talk every day, know every employee's name, that level of involvement. And that really worked well for me." August Felker

How I found the deal: cold calls and a river guide

When I worked for John and Josh, my job was sales, and I had to learn it from the ground up. The process was cold calling, hustling, and knocking on doors, and I learned to be okay getting rejected all the time, to have a process, and to stay organized. When I started searching, I ran the same playbook: I built a good list, cold called like crazy, sent a lot of handwritten notes, and did coffees. I even played little competitions with myself to stay motivated. Because of that, I found my deal within the first couple of months, which I know makes a lot of searchers envious given how long the hunt usually takes.

The other thing we used was a river guide strategy. Every industry has a handful of highly connected people who know everybody, almost like influencers. In insurance, I figured the editor of a trade publication, Insurance Journal, would be a natural river guide, because an editor has to get quotes from and write about people all across the industry.

"I cold called the editor and told him what I was trying to do, and he said, 'Oh yeah, I know someone who's selling their business in Madison, Wisconsin.' I got on a plane before he could even say no." August Felker

That is exactly how it happened. The editor connected me to a seller, I flew out the next day, and I was able to close the deal. Some of my investors worried I had not looked at enough deals, that I should get more at-bats before committing. My answer was simple: this could be the only deal, so how would I know a better one was coming? I think my story, as the son and grandson of insurance guys, connected with the seller, and eventually everyone got comfortable that it was the right deal at the right time.

My first day as CEO, and the woman who cried

The business was Murphy Insurance Group, about 40 employees, in the countryside outside Madison, near a town called Waunakee. It was a great place to land. But the transition itself was full of drama and stress. The seller wanted to keep the sale confidential until the last moment, so almost none of the employees knew what was coming. He gathered everyone under the guise of a routine 401(k) meeting to kick off the year, and then announced that he had sold the business and that I was the new CEO.

"Everyone was there, and they were shocked. One woman in the first row started crying immediately. We were off to a great start." August Felker

I had managed teams and been a captain on a college sports team, but this was a completely different thing. The night before, I was more nervous than I had ever been. I practiced the speech a hundred times and called my friends and investors asking how it sounded. Those are moments you never forget.

The mistake I made: being too accommodating

Looking back, I do not think I did the best job buying that first business, tactically speaking. The price was reasonable and right down the fairway for valuations at the time, but I was in constant accommodation mode because I was terrified of losing the deal. Every time something came up, I would say, yeah, we can do that, and that came back to bite me once I was actually running the company.

"I was in constant accommodation mode because I was worried about losing the deal. That came to cause problems down the road once I got in the business." August Felker

Part of what sold the seller on me was that I promised to come in, learn from him, and let him stay involved through an earn-out. What he heard was that he would still be in charge while bringing me along and collecting a big check. In practice, that is almost impossible to make work. However delicately I tried to change anything, it was hard and emotional for both of us, because there were two cooks in the kitchen. That misalignment created real friction later, when I genuinely needed to make changes and could no longer be so accommodating. It was almost shocking to them.

The single biggest lever: hiring producers

To grow revenue in insurance, you have to hire good salespeople, who in our industry are called producers. The catch is that great producers are extraordinarily rare. A consultant we hired told me that the real selling skill exists in less than five percent of the population, so I spent my time hunting for those people, recruiting them over breakfasts, and bringing them onto our roughly 40-person team.

"A really good producer can produce three, four, five, six times the business of an average producer. It's like recruiting an NBA all-star to your team. It just totally changes the game." August Felker

We landed three of those all-stars, and it changed everything. They came in writing so much new business, so aggressive and determined, that it lifted everyone else on the team. People could not believe it, and the business took off. Hiring those three producers was the single biggest thing I did to grow the agency.

Selling, and doing it again on my own

Murphy was a traditional search fund, and from around 2010 onward, multiples for insurance agencies kept climbing. It was no longer a secret that these are great businesses, and roll-ups were buying agencies aggressively. I had bought in at roughly six to eight times EBITDA; today it is more like 12 to 14 times. With multiples rising and our new hires finally creating momentum after a bumpy few years, my investor group felt it was a good time to sell.

We sold to a strategic backed by a large private equity firm, and I stayed on for a three-year earn-out to help manage the transition. During that time, I realized I still had energy to be an entrepreneur and was not sure I wanted to work for a big company long term. We had four young kids by then, so I decided to try to buy another agency, this time on my own.

"Was it easier the second time around? 100 percent. Skipped a lot of mistakes, had more confidence, had a track record." August Felker

That second search was self-funded, and it led me to a small insurance brokerage in St. Louis, which became Oberle Risk Strategies. It was a much smaller deal than Murphy. I knew I would have to pay a higher multiple than I did the first time, but I also believe insurance is a business you can own forever, and over a very long hold, the entry multiple matters far less.

Why I love serving the ETA community

Today, Oberle serves a large number of ETA businesses, and the ETA world is a great community to work in. There are not a lot of sharp elbows. How can you not root for someone who is risking their financial future and moving across the country to go buy a business? I know that feeling of being scared and taking the leap, so helping searchers is deeply rewarding.

It started organically. When I bought my first deal, a lot of my peers called asking for insurance advice, and that grew into a real practice helping searchers when they go to buy a business. My goal is to give them unbiased, honest insurance consulting so they know someone is looking out for them and they do not have to worry about the insurance side.

"We build lifelong relationships with our clients. We help them do a deal, we help them with their personal insurance, and we aim to be a trusted person in their professional lives. It's very professionally rewarding." August Felker

Every day I get to talk to searchers, and that is just fun. If you are running a search and want a second set of eyes on the insurance side of a deal, that is exactly the work I love most.

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