Target identification — the five-dimension filter.

Target identification is the filter that runs before diligence, and its job is to reject the wrong targets cheaply. The line-of-business mix alone proves why revenue is a weak filter: a $1M agency that's 80% commercial and 20% personal is a different business than a $1M agency split 50/50 — different expertise, different carriers, different staffing. The five-dimension profile filter replaces "does the revenue look right" with a structured read of whether the target actually fits the buyer's strategy and capacity.

§ 01 · The five dimensionsThe filter.

The five dimensions work as a sequence of gates. Business composition screens for the basic fit — is this the right line mix, in the right geography, with carriers the buyer can keep? Book quality screens for the asset's health. Hidden risks screen for the failures that don't show in the headline numbers. Strategic fit confirms the target advances the buyer's actual thesis (a tuck-in within roughly 20 miles to merge operations and cut overhead is a different play than a diversification move). And financial-capacity match confirms the buyer can actually afford and finance it. A target has to clear all five to earn the diligence spend.

§ 02 · The thresholdsWhat the numbers have to clear.

Three thresholds turn the book-quality dimension from a judgment call into a screen. Retention of 85–90%+ is healthy; under 80% is a red flag, and a leaky-bucket pattern shows below about 83%. Single-client concentration at 15% or more triggers lender concern and structural deal changes. And the loss-ratio history matters because a high three-year loss ratio means carrier-termination risk and contingency-bonus elimination — so request three years of loss runs before committing. Carrier alignment is the non-negotiable one: acquiring an agency without securing the seller's primary carrier appointment means forced client migration and massive churn, so a target whose carriers the buyer can't keep fails the filter regardless of how good the rest looks.

§ 03 · The hidden risksWhat the numbers hide.

The hidden risks are the reason the filter exists at all — they're the failures a revenue-only screen waves through. The melting ice cube is a book that looks healthy today and is structurally declining; key-person risk is a book whose retention is borrowed from one person's relationships. Both are disqualifying for the wrong buyer and manageable for the right one, but only if they're caught at the filter stage. A buyer who identifies key-person risk early can require multi-staff relationship transition or a producer retention package; a buyer who misses it discovers it when the producer leaves and the book follows.

§ 04 · Structuring around a flagThe earnout lever.

A filter that only says yes or no leaves value on the table — the more useful move is structuring around a flag rather than abandoning an otherwise-good target. A 20% single-client concentration, for example, doesn't have to kill the deal: an earnout — "$2M at closing plus $500K at 12 months if the whale client is retained" — aligns the seller's incentives with the buyer's post-close success and converts a concentration risk into a shared one. The slice option does something similar at the sourcing level: a buyer can acquire a custom fractional portion of a book (a line-of-business subset, a geographic subset, a carrier-aligned subset) for lower capital and lower risk with a surgical fit, which expands the addressable target universe beyond whole agencies. The filter's real output isn't a binary pass/fail — it's a structured read that tells the buyer which targets to pursue, which to walk from, and which to pursue with a structure that prices the flag.

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