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The Vocabulary of a Deal: What is a Pro Forma?

What is a pro forma

In the intricate world of insurance agency mergers and acquisitions (M&A), the term "pro forma" holds significant weight. But what exactly is a pro forma, and how do M&A advisors utilize it as a tool in negotiating the sale of an insurance agency?

What is a pro forma? 

A pro forma is a financial projection that estimates a business's future performance. It considers a business’s historical performance and often reflects variables that could impact the company’s financial standing post-acquisition. 

How is a pro forma used in a sale?

Pro formas are presented to buyers to paint a picture of a business's future financial health (in this case, an insurance agency). By analyzing historical financial data, current market trends, and operational efficiencies, advisors create a pro forma that showcases the agency's growth potential under new ownership.

So, how does a pro forma tie into negotiating a sale price? 

M&A advisors leverage the pro forma as a strategic tool to align buyer and seller expectations. By presenting a realistic projection of future earnings and potential synergies, advisors can help both parties reach an agreed-upon valuation for the agency being sold.

How do M&A advisors build a pro forma?

  1. Initial Assessment: M&A advisors will conduct a thorough evaluation of the insurance agency's financials, operations, and market position.

  2. Pro Forma Development: Using this assessment as a foundation, advisors will create a pro forma that outlines the agency's projected financial performance post-acquisition. This includes anticipated revenue growth, cost savings, and any other factors that could impact profitability.

  3. Negotiation: Armed with the pro forma, advisors facilitate negotiations between the seller and potential buyers. The pro forma serves as a guiding tool to justify the proposed sale price based on the agency's future earning potential.

  4. Agreement: Once both parties agree on the terms, including the sale price, the pro forma becomes a reference point for the finalized deal.

In essence, the pro forma is not just a financial projection but a strategic instrument used by M&A advisors to facilitate a smooth and mutually beneficial transaction. It provides clarity and transparency, helping both buyers and sellers make informed decisions throughout the negotiation process.


Legacy Advisors is the only M&A advisor comprised of previous agency owners dedicated solely to sell-side insurance deals. 


Schedule a call with us if you are curious about what a sale could look like for you. We can answer your questions, advise on market trends, and discuss ranges for what a buyer might pay for your business.

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