Michael: Marc Maselli, how are you?
Marc: I’m doing great, pleased to be here.
Michael: I’m glad to have you. In part, because of what you know and the rather unusual position that you take in the industry in that you’re to some extent, you are one of the guys who are making change happen and certainly facilitating that change. First thing I want to ask you, a real short thumbnail of what do you do and how did you get to do what you’re doing right now?
Marc: Great. I’m happy to tell you. Yes, my name is Marc Maselli. I’m the founder managing director of Morgan Partners. We’re a FinTech investment bank and we do a great deal work in insurance or insurance tech. What we do is help companies to execute M&A transactions, largely. This means sell in whole or in part, or to re-capitalize or to raise financing. On occasion, we help companies buy other companies as well but for the most part, it’s about obtaining financing or obtaining liquidity. We do that for companies that are in say $20 million to $200 million enterprise value range.
The revenues, depending upon how the company’s valued, the revenues could be anywhere from 10 to 20 on up. The way I got into this position is a little unique. I’m a former operator and an entrepreneur, like yourself. I had a technology business, which I built and sold and after working an earn out with the Inquirer and helping Inquirer buy some companies, I decided that I could do a good job in investment banking and I could perhaps help other people have a better experience than what I had selling my company. Because when I sold my company back in the early 2000s, I really didn’t know what it was all about and how deals work. I thought I could bring together both aspects, both sides of the table. Running a company as well as helping on the M&A investment banking side. Bring both those skills together.
Michael: Got it. All right. You are one of the few investment bankers that I read.
Marc: All right, good.
Michael: Well, obviously because you’re in our space and I noticed– I think one of the most recent publications that I got from you was a 23-page report on your observations of I guess what’s happening in your part of the field and in FinTech and InsurTech. Was that for maybe Q4 of 2018?
Marc: Yes. Most likely we publish a quarterly executive briefing and then I think the last one came out the first few days of 2019 and that’s right, so summarized what happened in 2018.
Michael: Well, it was 23 pages. I thought, “Wow, there’s a lot happening in our industry.” I want to ask you maybe give a summary of a summary of that summary. What are the big trends and forces that you’re dealing with? I think to a very large extent, all of us are dealing with that you would say maybe are different than they were a decade or so ago when you were earlier in this space?
Marc: Yes. Well, at the highest level, I think InsurTech is a thing now. I think 10 years ago, there was many people like me that were working in insurance and in technology but it wasn’t really a stated field. It didn’t really have a name. Since 10 years ago, since the Lehman crisis, really, I think after 2008, 2009, 2010 when a lot of the major financial institutions had– the traditional finance all institutions had problems and stumbled, there has been, especially the last few years, a huge amount of capital that has come into the segment to try to displace and change the way the traditional players have been operating and prevent those issues that we saw happen 10 years ago from happening again.
The amount of attention that– at first, the investment was a lot around alternative lending and payments like in 2010-2011 but in the last, say, three four years, insurance technologies and some of the other last historically less central segements of financial technology have gotten a lot of investment a lot of attention. That influx of capital I think is changing all of us in the way that we’re working, Because at the top of the food chain, the major carriers are all looking to invest and partake and be enabled by all of the transformed business models. Then everyone else on down is also trying to react and get ahead and it seems clear that some of the lower value parts of the value chain are going to be automated and removed and people need to react to the injection of technology in a whole swath of areas.
Michael: All right. I want to circle back to that because I think that’s a critical point and I think for agents it’s a strategic issue and depending on their strategic horizon. What you just raised is maybe a significant issue. I would circle back to it, but I have a short question I want to ask you. Historically, FinTech, financial technology, it is an older industry or sub-industry than InsurTech?
Michael: Why do you think that is? Why did so much capital flow into the finance side, and the banking side, and the lending side, and all of that jazz before it really flowed here? What’s the historical reason for that?
Marc: I think some of– in the initial waves, I think some of the consumer oriented areas of FinTech that people knew and understood like personal finance and sort of personal wealth and payments, I mean these are things that consumers did and I think they were the easiest to first get your mind around. Insurance and in some other areas, there things that people encounter a lot less often and they’re more the solutions are more enterprise in nature and therefore more complicated.
I think it took more time for areas like InsurTech to get the kind of attention. I think this investment has now expanded to many different areas. Almost all areas of FinTech sort of sub sectors. It’s now here. There’s over half a billion invested in FinTech in 1 Quarter and a sizable chunk went to InsurTech.
Michael: You would said that it now has a name, Insurtech. I have a very good friend, he’s an advisor to the industry, he’s been a guest on this podcast who has said, “There’s no such thing as InsurTech. Insurance and Technology have always worked together.” That being said, the last time I saw you was at the InsurTech Connect Conference. I think there were about 6,000 people there. It’s a little hard to say InsurTech is not a thing. There were sponsors and I mean, there was there was cash flowing through that machine.
I’ve also had the CEO of InsurTech connect as a guest on this podcast. I think we’re at the point where we can say, “All right. Yes, insurance and technology have been friends for decades or forever.” Now, there is a subculture or a movement. Do you think it’s just because– obviously insurance and technology have always been together, but now that capital, the massive volume of capital has kind of given it, made an entity out of it. Is that it?
Marc: Yes, I think there’s many people from outside the industry who have brought their ideas in from professional investors, financial sponsors who are trying to disintermediate parties or trying to reinvent business models. Or enable. There’s many different entries but there’s also the enablers like the whole– many companies trying to allow traditional business models to sort of uplevel their game. There’s lots of new people involved. I think there’s also the horizontal technology players like the Googles, the Microsofts, Dells, and Amazons also injecting, influencing what’s happening and we are entering the space in certain cases.
Michael: And Chinese money. There’s a there’s a lot of innovation that’s happening abroad that’s pushing its way over here. I think in a lot of interesting innovation in China because, oh [laughs] it’s a less mature industry, maybe, so they can kind of and they’ve got different things to work with different consumer relationships of but some very interesting things happening over there. I’ve had interviews with people who know a lot about that on this podcast. That being said, a very short story again, back to the last time I saw you I just wanted to track you down in InsurTech Connect and make sure we at least had time for a cup of coffee or something. It was after the end of about two days and we finally did connect and I looked at you and you kind of went, “Phew,” I said, “What’s going on?” You said, “Well, I’ve had to book like 19 appointment since I’ve been here.” People knew you were an investment banker, I guess, and they were using the app to like track down Marc Maselli and make an appointment. Maybe get some money or something. I suspect that was a very busy two days and that you’ve been really busy since then.
Moving forward, I know yes, we’ve talked about, oh gosh the effect of InsurTech on the industry. Some people think it’s been big, some people not that big. Moving forward, where do you think it’s going? You had mentioned a couple of things. One, disintermediation, which of course is a word that tends to get my attention and the attention of my audience. You’d mention the compression or the elimination or the replacement of lower value elements of the value chain.
Michael: Okay. For my audience, who cares very much about some of the enabling technologies and the continuation of the agent broker channel, where do you think InsurTech is going?
Marc: To start with distribution, right now the market is valuing players in distribution that have unique intellectual property and have invested in special sauce, often technology, to differentiate themselves from other distribution platforms. The differences in how companies can be valued really shows because valuations are expectations of the future and right now, the traditional business model of a brick-and-mortar agency that is running AMS 360 or Epic in the back and that’s the end of the technology and they’re sort of getting their customers through buying leads or through phone calls, dimes for dollars-
Michael: Or producers. They got to send producers out to the field so they can get their own leads one at a time-
Marc: Or two feet on the street. There you go. Those kinds of businesses are generally valued on a lower sort of single-digit kind of six to eight kind of times of profits, times EBDA. Whereas, there are businesses that use technology, whether they’re sort of consumer-oriented platforms that are comparative and pure and multi-line in nature or if they’re sort of partner distribution models through ecosystems where insurance, the need for insurance is generated real time.
Like when you get a loan from a credit union or you purchase a car or you sign up a new payroll provider and you need comp. The connection in either pattern, whether it’s through partner or direct is through technology and a lot of the underwriting in the capture of data is automated and some, for the perfect kind of company or individual there could be binding online. You’re using your producer force to close and to consultative sales, to cross-sell and get the right product for complex situations, but you’re not doing it day in and day out getting the $800, six-month auto policy. You’re not comparative quoting that all day long. I think those ladder agencies can be can be valued completely differently with the mid-single digit revenue multiples in certain cases for agencies that have nailed the ability to have [crosstalk] value of the customer and proven cost of acquisitions. It’s night and day in terms of where the market is assigning value.
Michael: That’s really interesting. I know that Marc, you’re not involved in M&A of The Independent Insurance Agency, that’s not the space you’re in.
Marc: Generally, the common denominator of all of our customers is that they’ve made an investment or they’re differentiated by technology. Digital agencies or tech savvy brokers is our MGA’S guess but digital businesses no, there has to be a technology component.
Michael: But you understand the space, you clearly understand M&A. I’m going to ask you a question that you and I we’ve talked about this before so I think I know the answer. [laughs] I think I know the answer anyway, but it’s a question that it is, I think, of supreme importance and is not well enough understood. Let’s go back 20 years or whatever and agents who were thinking about perpetuation may have been thinking, “Oh goodness, agencies are going now for 1.5 or I got 1.6 of top line revenue. Let’s just–”
Then all of a sudden, we thought we were a little more sophisticated and we started to realize, “Oh no, the model that everybody is using right now is not top line revenue. It’s a multiple of margin or EBITDA.” Then I ask you this question basically because of the business that I’m in. All right let’s take we have two agencies and they have maybe the same EBITDA. They’re both $5 million agencies. Agency A they represent the great national carriers and a great community. They’ve been around since 1873 and they’re growing 5% a year, whatever. Some embarrassing industry average fourteen and six.
Then we’ve got Agency B and Agency B also $5 million revenue agency and represents great national carriers and a great community. Maybe they’re right down the street but they’re newer, they’re younger. Maybe they’re whoever, somebody took over five, seven, 10 years ago. They’re a $5 million agency that has a track record of 15% growth. They’re really hitting it, man, they hit the pedal to the metal, it’s 20% growth year after year. I’ve got clients who are hitting 30% or more and they’ve done it for years, the value on that.
Now, M&A guy comes in and he looks at this thing and he says two agencies and EBITDA is the same but value is different. Tell me about how you look or how the industry will look at the difference between those two things, where the only significant different factor is a track record of higher growth.
Marc: Growth is after the revenue and EBITDA and margins itself, growth is probably the most important factor. A business that’s growing like inflation is very different than one that’s growing teens or 20 plus percent. Just practically speaking there’s a much greater market and a number of people that would be interested in an agency that has that higher growth rate. A set of people interested in hiring the more pedestrian business is just much lower. A $5 million agency maybe growing 5% probably is going to have a hard time selling to anyone. At any price, it’s hard to generate demand.
Whereas a business that has more potential and is growing like that is going to have more surety of getting a deal done first place. Then, most likely at a higher multiple because when people value businesses they’re looking at the future cash flows. If someone is growing 15%, there is something good going on, most likely. It’s above average and depending on who the buyer is they can probably pull some levers and make it grow even faster. Chances of getting a deal are higher, valuation is going to be higher and to say how much higher you’ve got to look at sort of the specifics.
Michael: Got it, all right next question. Circling back, now the independent agency principle is navigating their way in a very different environment than they were 10 or 20 years ago. Clearly there are a lot of good agencies that are operating just like they did in 1995, but maybe those are the ones who should be thinking, “Yes, it’s time for me to perpetuate because of whatever”. They don’t have the vision, the skills, capability, the interest, whatever.
Now we’re operating in a different world and technology does seem to be really quite disruptive and in some cases quite unpredictable. In some cases, those disruptions are not coming from inside the industry. Take autonomous vehicles for example. That is not being invented or created by the insurance industry But clearly could change the nature of the way vehicles are insured, the level of premium, where the liability and the risk lie. Does it lie with the fleet owners, the manufacturers so on and so forth.
Now with all of this InsurTech changing, technology in the greater world changing and you’re operating a main street agency. You’re kind of thinking, “All right, I’m not selling it now, I want to operate successfully”. First of all, I don’t think it’s time to panic but I do think it’s time to be vigilant and clearheaded. What advice would you give to the independent agency system about navigating some of these perhaps difficult trends in the future?
Marc: The autonomous vehicle’s one certainly has a lot of potential to change radically in terms of the number of incidents and severity et cetera. Premiums are going to float through that, the auto line of business. I think, generally speaking, on facing the customers, the book needs to be broadened. There needs to be more lines of business. I think a lot of the agencies who aren’t selling commercial lines need to look to the more complicated products and to offer small business insurance and not just the consumer.
I think to offer a wider range of products and more complex advice, and I think you still have to be able to sell the simple things but I think you need to be able to do a heck of a lot more efficiently and you need a platform. If you’re going to be selling those products you’re going to need a platform that can help you quote issue and get your commissions paid much more quickly than if you’re doing it the way you did it 20 years ago, you’re not going to be able to stay in that business because the larger agencies are just able to do it much more efficiently.
Michael: Got it, all right. I had a guest on this podcast just a few weeks ago, also from Massachusetts who his perspective– and again, not an agent, not in the independent agency force but in the technology world, artificial intelligence and machine learning. His sense was moving forward, the smart agents should learn to go upmarket. The safer harbor moving forward probably is upmarket where I think a couple of factors come into play. One is it’s a marketplace that because of the nature of their assets and so on and so forth they probably place a high value on peace of mind and security and actual protection, not just price.
Two, the demands of the risk require more wisdom, more expertise more knowledge and so at least at this point it requires the intelligence and thoughtfulness that a human being can bring to it as opposed to artificial intelligence. That may change in the future let’s suffer through one trend at a time. Going upmarket that seems to be, that echos what you’re saying is that there’s [crosstalk]?
Marc: I agree because as you go upmarket you’re going to need more advice and counsel. It’s much harder to compare some bop in professional liability policies than it is as a single pass in Toronto. Absolutely. Moving upmarket, where you generally need to know what the different writers are offering and how they compare in claim experience et cetera. It’s much different and I think, yes, people are always going to want more counsel and a registered agent to help them make choices when it’s a bigger expenditure. I would agree with your previous guest about that.
Michael: Got it and then you had mentioned kind of the compression or the automation of lower value parts of the value chain. What do you think is going to happen, what’s the impact of that on the day to day lives of our business?
Marc: For your average producer you mean?
Michael: Yes. Producer agency.
Marc: We’ve been saying this for 10, 20 years that disintermediation and the–
Marc: It’s been the theme as long as I can [crosstalk]
Michael: It was probably over 20 years ago that Bill Gates dropped that word. It was like a bomb that rippled through the industry. We’re still here.
Marc: Yes. Insurance is complicated. We have states and we have regulations. It’s not going to happen overnight. I would think that the percentage of business that’s going to be quoted electronically and bound electronically is going to increase. We’ve seen customers of ours that do have binding online happening now. For some of them, that’s a fraction of a percent. For others, it’s a substantive percentage in niches here and there.
[crosstalk] over time this is going to become more and more common. I think if that is currently where you’re working, if you’re just selling renter’s insurance, you’re going to need to start broadening the portfolio that you’re working on.
Michael: Got it. All right. In a moment, Marc, before you have to go, and I know you do, I’m going to ask you how people can find out more about what you’re up to and what Morgan Partners is all about and how they can learn more. Before we do that, now, how would you summarize– For the next three years, what do you think of the behaviors and qualities of the best agents that are going to thrive in this whatever, call it unusual or call it unpredictable or different period in the next three years?
Marc: I think they’re going to embrace technology. I think they’re going to be very good at marketing. I think they’re going to know how to connect with people on multiple channels and to business with millennials as well as [crosstalk].
Michael: [laughs] Right.
Marc: They’re going to be savvy. They’re going to be able to handle things online. They’re going to be able to hand-hold people through more manual transactions. I think there has to be flexibility. They have to embrace the change in the segment they focus on.
Michael: Okay. This, by the way, I believe is our 101st podcast. The message of embracing change. It seems to me what every single guest has said in the last two years. You’re in good company. Marc, if anybody want to learn more what Morgan Partners is all about and what you’re up to and maybe make contact, how do they do that?
Marc: Just go to our website, MorganPartners.com. You can get all of our contact information there.
Michael: Got it. All right. Well, as always, Marc, I appreciate you sharing your wisdom and your time with me. Thank you very, very much.
Marc: Thank you, Michael. Take care. Thank you.
Michael: Pleasure. You bet.