LOI Template & Guide for Acquiring a Commercial Insurance Brokerage

Purchase Price and Valuation Basis

Establishes the proposed total consideration and the methodology used to arrive at it. For commercial insurance brokerages, valuations are typically expressed as a multiple of EBITDA (5x–9x) or as a percentage of annualized commission revenue (typically 1.5x–3x trailing twelve-month gross commissions). Buyers should specify whether contingent commission income is included in the base calculation and whether the price assumes a normalized owner compensation add-back.

💡 Sellers often resist separating contingent commission income from the base valuation because it inflates the headline multiple. Buyers should insist on segregating contingent income and applying a lower multiple to it — typically 3x–4x — since it is non-guaranteed and carrier-dependent. Expect pushback if the seller's advisor has quoted a straight commission multiple without EBITDA normalization. Clarify whether the stated multiple is pre- or post-earnout to avoid confusion at LOI stage.

Deal Structure and Payment Terms

Defines how the purchase price will be paid, including the upfront cash portion, seller note, earnout, and any equity rollover. Commercial insurance brokerage acquisitions almost universally include an earnout component tied to client retention because buyer risk is real — accounts loyal to the selling producer may not renew with the new ownership entity.

💡 The split between upfront cash and earnout is the most negotiated element in insurance brokerage deals. Sellers want 80–90% upfront; buyers want 60–70% to hedge client attrition. A reasonable market outcome for a brokerage with 3-year retention above 90% is 75–80% upfront. Sellers should push back on earnout calculation methodology — specifically, whether new clients added post-close or organic growth on existing accounts count toward retention thresholds. Buyers using SBA financing should confirm the SBA lender's position on earnout structures, as some lenders restrict standby seller note terms.

Earnout Mechanics and Retention Calculation

This section is unique to insurance brokerage LOIs and deserves its own standalone clause. It defines precisely how client retention will be measured, the earnout payment schedule, and what happens if accounts are lost due to causes outside the seller's control such as market withdrawal, carrier non-renewal, or insolvency of the client.

💡 Sellers must push to define exactly what constitutes a 'lost' account versus an account the buyer chose not to service or moved to a different carrier. Buyers sometimes attempt to reduce the baseline commission figure by reclassifying certain revenue as excluded — sellers should define the baseline commission figure precisely in the LOI with a schedule attached. Earnout disputes are the most common source of post-closing litigation in insurance brokerage deals; specificity at the LOI stage reduces risk for both parties.

Carrier Appointments and Market Access

Addresses the transfer or reappointment of carrier agreements, which is essential to the agency's ability to continue writing business post-close. Unlike most assets in an acquisition, carrier appointments are contractual relationships with third parties that may require advance notice, new applications, or approval from the carrier.

💡 This is frequently underweighted in early LOI drafts and becomes a major closing condition issue. Buyers should map every carrier appointment against the revenue it generates before LOI signing, not after. Some carriers — particularly specialty or excess and surplus lines markets — require the acquiring entity to apply independently and may take 60–120 days to process. Roll-up platform buyers have an advantage here because they often already hold the necessary appointments. SBA buyers acquiring as independent entities face the most carrier appointment risk and should begin informal carrier conversations before executing the LOI.

Due Diligence Period and Access

Defines the exclusivity window during which the buyer conducts confirmatory due diligence and the scope of information the seller must provide. In insurance brokerage acquisitions, due diligence centers on client-level data, carrier agreements, E&O history, and producer economics — all of which sellers may be reluctant to share broadly before a binding agreement.

💡 Sellers should insist on a mutual NDA before providing any client-level data or carrier agreement details. The agency management system export is highly sensitive — sellers may request that client names be anonymized until late-stage due diligence. Buyers should resist pressure to shorten the due diligence window below 45 days for any brokerage with more than 200 accounts; carrier appointment verification alone can consume 2–3 weeks. Buyers using SBA financing should build in an additional 30-day buffer to accommodate lender underwriting timelines.

Seller Transition and Employment Terms

Defines the role, duration, and compensation of the selling owner post-closing. Because client relationships in commercial insurance brokerage are often built on decades of personal trust, buyers almost always require the seller to remain as a producer or relationship manager for a defined transition period. This section also sets the foundation for the non-compete and non-solicitation restrictions.

💡 The length and compensation structure of the transition arrangement is heavily negotiated. Sellers nearing retirement often want the transition period to be short (12 months); buyers want 24–36 months for accounts with high key-person risk. A reasonable compromise is a 24-month initial term with a mutual option to extend. Commission override rates during the transition should be market-competitive to keep the seller motivated — below-market overrides undermine the retention outcome earnout buyers are paying for. Sellers should also negotiate the right to exit the transition period early if the buyer fails to meet stated operational or service commitments.

Non-Compete and Non-Solicitation

Restricts the seller's ability to compete with the acquired agency or solicit transferred clients and producers following the close. These provisions are standard in all insurance brokerage acquisitions but are particularly sensitive because the seller is often continuing as a licensed producer in the same geographic market.

💡 Non-compete enforceability varies significantly by state — buyers and sellers should confirm applicable state law before relying on any standard language. Sellers often push to limit the non-compete term to 2 years and the geographic radius to their immediate market area. A non-solicitation provision covering existing clients is far easier to enforce than a broad geographic non-compete and provides buyers with more practical protection. Sellers should carve out the right to service clients they bring as new relationships after the close and to produce business outside the acquired agency's historical geographic footprint.

Representations and Key Conditions to Closing

Outlines the seller's material representations and the specific conditions that must be satisfied before the buyer is obligated to close. For commercial insurance brokerages, the most critical conditions relate to E&O coverage continuity, absence of material client losses between LOI and close, and confirmation that carrier appointments are transferable.

💡 Sellers should expect buyers to request an updated retention analysis 30 days prior to closing as a bring-down of the representations. Sellers must disclose any known E&O issues, carrier relationship changes, or client account losses between LOI signing and closing — failure to do so creates significant post-close liability. Buyers should define 'material' client loss precisely — a useful benchmark is any single account representing more than 2% of annual commissions, or aggregate losses exceeding 5% of total commissions between LOI and close. Tail E&O coverage obligations should be explicitly allocated in the LOI to avoid disputes at closing.