This episode continues with our “industry spotlight series” where we focus on specific trends and opportunities in middle-market M&A transactions. Our previous episodes have covered four industries in which Colonnade has played a significant role as an M&A advisor to both buy-side and sell-side clients. We add F&I Agencies & Payment Plan Providers as industries where we deeply know the dynamics and players so as to provide exceptional service to clients who hire us to assist them in a transaction. Colonnade has studied the F&I Agencies and Payment Plan Provider markets for the last 20+ years. We have worked on nearly 30 M&A transactions on the buy-side and the sell-side. We have gotten to know the industry players and the buyers. We’ve identified some high-opportunity M&A plays that could help to drive even more value, scale, and customer satisfaction in the industry. Spotlight on F&I Agencies (1:00) In this first part of our episode, we answer the following questions: Where do F&I agencies sit in the F&I ecosystem? (1:00) What does a typical F&I agency look like? (7:00) What is going on in terms of M&A and what are the value drivers in the industry? (9:00) What is driving M&A transactions right now and what are some potential M&A plays? (12:00) Where do F&I agencies sit in the F&I ecosystem and what value do they provide? (1:00) Gina: Between the F&I administrators and the F&I office and the dealership, there are F&I agencies. They are independent agencies with independent agents. They are like insurance agents. They bring together the product administrators and the dealers.  Gina:  The agents have deep knowledge about the products they represent. They can train the F&I office on those products and how to sell the products. They also act as the middle man or the interface with the administrator. They are one distribution arm for the administrators, which makes them critical in the ecosystem. They are a valuable component of the overall F&I ecosystem. Jeff: The F&I agency is a particular point in the value chain. It’s a differentiator. Some administrators sell to dealers through a direct sales force, others use F&I agents.  Gina: There are administrators who go direct to dealers, but most administrators also use independent agents. They may have a direct sales force, but they have independent agents also. The only sector where that seems to not always be the case is selling into independent dealerships. You tend to see more direct agents that are employed by the administrators selling into the independent dealerships. Gina: An important component of what the agents do is help the dealership with reinsurance. Reinsurance is an important component of a dealership owner’s profits. For every contract, every F&I product that is sold, there is a reserve set aside for future claims. F&I agents are usually very fluid and educated in talking about reinsurance and making sure that the dealership has the right reinsurance programs. So they deal with reinsurance, they do training on products, they do training on how to sell products. They sometimes help with staffing in the F&I office, and they’ll help with some of the technology that is between the F&I office and the administrator. Gina: F&I represents a third of a dealership’s profits. Everybody within the organization and affiliated with the organization is going to make sure that F&I runs smoothly. What does a typical F&I agency look like? (7:00) Gina: There are well over 100 independent agencies, and approximately 75%-80% of F&I agencies are less than 10 employees. There are very few large agencies. There are a few that are scaling, but there really aren’t many. There is only one national agency that comes to mind and that’s Vanguard (owned by Spectrum Automotive). Vanguard has been very acquisitive in building out its agent network. We also see Brown & Brown, which is a P&C insurance brokerage. They’ve been acquiring F&I agencies over t