How to value a slice — the fractional valuation framework.

Valuation is where slice buyers most often hurt themselves, and the wound is almost always self-inflicted with the wrong tool. An EBITDA multiple values an operating business — its overhead structure, its leverage, its growth runway. A slice is none of those things; it's a defined set of policies with a commission stream attached. Apply the business multiple to the policy stream and you overpay, predictably and substantially. The fractional framework exists to price what you're actually buying.

§ 01 · Why EBITDA multiples overpriceAnd what to use instead.

Whole-agency EBITDA multiples run 3×–5× and bake in three things a slice doesn't carry: shared overhead that the remaining agency keeps, the full operational complexity of running a business, and the growth-and-leverage potential of an ongoing enterprise. Extract a set of policies and none of that comes with them — so applying an EBITDA multiple to a slice is systematic overpricing. The correct basis is annual commission, scored across a six-attribute framework: line-of-business mix, carrier composition, retention profile, commission structure, geography, and client quality. Each attribute moves the multiple up or down from a base, and the discipline is to run all six rather than eyeballing a round number. The same commission-multiple logic governs every execution play; it first appears in bolt-on acquisitions.

§ 02 · The six-step processFrom base commission to fair value.

The process runs in six steps. One: base annual commission = annual premium × commission rate (personal lines run 10–12%, specialty commercial 15–20%). Two: the line-mix multiplier — standard low-complexity lines like personal auto and homeowners at 0.5–0.75×, specialty high-complexity lines like contractor or professional liability at 0.75–1.25×. Three: the retention adjustment — the single strongest factor, moving value 20–40% (a 95%-retention book is worth roughly 30% more than a 75%-retention one). Four: carrier fit — already appointed adds 10–15%, a required new appointment subtracts 10–15%, since carrier consolidation simplifies servicing and fragmentation costs. Five: client quality and geography — high concentration and rural footprint subtract 10–15%, low concentration and urban add 5–10%. Six: fair value = annual commission × the adjusted multiplier. A worked illustration: a personal-lines slice ($150K premium, 88% retention, split across two carriers where both need new appointments, 80 customers) has a base commission of $18K, a 0.65× line multiplier, no retention adjustment, and a −10% carrier adjustment (both new appointments) — for a 0.585× multiplier and a fair value of about $10,530.

§ 03 · Retention does the heavy liftingThe largest single lever.

Among the six attributes, retention carries the most weight by a wide margin. It typically adjusts valuation by 20–40% — more than line mix, carrier fit, and geography combined in most books — because retention is what determines how much of the commission stream actually persists. A 95%-retention book is worth roughly 30% more than a 75%-retention book of the same premium, which is why the diligence effort concentrates there. The other adjustments are real but secondary: carrier fit at 10–20% (consolidation is valuable, fragmentation is costly), geography at 5–15% (rural means lower retention and higher service cost; urban the reverse), and client quality at 10–20% (a top-10 that's 60% of premium is risky; a top-10 that's 20% is stable). The verification that turns a claimed retention number into a trusted one is the subject of slice due diligence.

§ 04 · Fair value is an anchorNot a ceiling, not a floor.

The number the framework produces is a negotiation anchor, not a hard ceiling or floor. A buyer may rationally pay above it for strategic fit — carrier consolidation, customer overlap, or market entry can justify around 1.1× of fair value. A buyer may rationally pay below it for retention risk, data-quality problems, or heavy integration work — around 0.9× is defensible. Sellers, for their part, may reject a fair offer out of emotional attachment, retention overestimation, or a genuine position of strength. What's not realistic is a seller pricing 30%+ above fair value; a reasonable strategic premium tops out around 10–15%, and EBITDA-multiple pricing (say, 4× EBITDA on a slice) systematically overprices. Used this way, the framework does two jobs at once: it tells you what to offer, and it tells you when to walk — the walk-away discipline that keeps a portfolio of small deals from quietly destroying value one overpay at a time. A source-verified valuation gives you the per-attribute inputs to run it on real data rather than estimates.

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