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The purchase and sale of insurance brokerages and portfolios: key aspects of the transaction
Key elements in the sale and purchase of insurance brokerages and portfolios
However, beyond the figures and underlying motivations, the success of a transaction of this nature lies in the execution of a thorough due diligence process and a properly structured contract. Issues such as the transfer of personnel, identification of employment-related liabilities, and protection of premium payments to the new holder of the contracts are especially relevant in this sector to ensure business continuity and client retention.
Key due diligence considerations in the sale and purchase of insurance brokerages and portfolios
Before signing the sale and purchase agreement, a detailed analysis of the company’s commercial, financial and legal status must be carried out to identify potential contingencies and risks to the buyer’s investment. In particular, within the insurance sector, the following aspects should be considered:
Legal aspects: From a regulatory standpoint, any sale in the insurance sector must comply with specific requirements, notably the supervision of the Directorate-General for Insurance and Pension Funds (DGSFP) and adherence to the Solvency II framework. Prior authorisation requirements and competition controls must also be considered, along with implications regarding consumer protection and data privacy.
Employment-related contingencies: Given the involvement of numerous actors in the operations of insurers and brokerages, particular attention must be paid to compliance with employment law concerning employees and, in particular, agents, to avoid the misclassification of agency contracts as disguised employment. These contracts, upon acquisition, will transfer to the new holder of the shares or portfolio.
Licensing: The insurance sector is heavily regulated, making it essential to confirm the existence of the necessary licences and authorisations to operate as an insurance broker. This includes authorisation from the DGSFP and registration in the special register of insurance intermediaries.
Typical clauses in sale and purchase agreements for insurance brokerages and portfolios
In terms of contract structure, sale and purchase agreements usually include key clauses to ensure legal certainty throughout the transaction. In both share purchase agreements and asset purchase agreements (relating to client portfolios), the following essential clauses are typically included:
Price adjustments: Given the recurring nature of income in this type of business, it is advisable to include clauses that adjust the price based on verification of the company’s current financial situation and its commercial performance over a defined future period.
Representations and warranties: To protect the investment in insurance companies, it is crucial to establish a liability regime incorporating representations and warranties provided by the seller. This covers potential hidden liabilities and includes specific indemnities in the event that contingencies identified during the due diligence process materialise.
Non-compete clause: In a highly competitive sector such as insurance, it is essential to include a non-compete undertaking that prevents the sellers from competing, either directly or indirectly, with the company whose shares or portfolio is being acquired. The scope of this clause—including the business activity, time period, and geographic area—must be clearly defined to ensure continuity of the client base, recurring income, and, consequently, business stability and profitability.
Finally, the shareholders’ agreement is especially important in cases where the former owners of the acquired brokerage remain involved in the business and integrate their operations into the acquiring entity. In such cases, it is essential to clearly regulate the relationship between shareholder partners.
Conclusions
In a context of increasing consolidation in the insurance sector, careful planning and structuring of M&A transactions is vital to minimise risks and determine the true value of the deal. At Devesa, we have extensive experience in commercial and corporate law within the insurance industry, offering specialist advice at every stage of the acquisition and/or sale process.
If your company is considering a transaction of this nature, we can help you structure it with maximum legal and strategic certainty.
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