Fee for takeover (buyout) of client list

[Guest David Dye]

I am negotiating to take over the pension client list from my employer and start my own TPA firm. My employer is getting out of the pension admin. business to concentrate on §125 plans. The client list has been built up over the past 10 years.

We have discussed a buyout fee for the client list equal to 1 x annual billings, payable as 20% of annual billings each year for 5 years. Is this a reasonable amount? What do other firms pay when taking over a large book of business at one time?

[This message has been edited by David Dye (edited 03-14-2000).]

[Guest Ray Williams]

The actual ratio of billings to sales price will vary from TPA to TPA. Are commisions included in the sales? Are actuarial services that will have to be contracted out included? How personal to the outgoing owner is the block of business? What is your personal relationship with the clients comprising the block of business?

You will also want to provide for a reduction in the actual sales price paid based on retention, i.e., factors for reducing the value of the block based on the number of years the business is retained.

If you wish to discuss other issues, send me an email-rwilliams@lda-fcpa.com