IRR

Also known as: Internal Rate of Return

Internal rate of return (IRR) is the annualized percentage return on an investment, computed as the discount rate that makes the net present value of all cash flows equal zero.

What is irr?

IRR is the most common metric institutional buyers use to evaluate an acquisition. It accounts for the time value of money: a dollar today is worth more than a dollar in five years, so cash flows that arrive sooner contribute more to IRR than cash flows that arrive later.

For agency acquisitions, the typical IRR target is 15–25% depending on the buyer's cost of capital and risk tolerance. A private-equity-backed roll-up will target 20%+; a strategic buyer using cheaper capital might accept 12–15%. Below the target, the deal doesn't pencil. Above the target, the buyer is willing to pay a higher multiple to win the deal.

IRR is sensitive to assumptions about retention, growth, and exit multiple. Small changes in the retention curve can swing the IRR by several hundred basis points.

Why it matters in agency valuation

Sellers don't usually compute IRR — but every institutional buyer evaluating your agency does. Knowing what IRR a buyer is solving for gives you leverage. If a buyer is targeting a 20% IRR and your agency only pencils to 14%, they'll pass; if it pencils to 25%, they have room to bid higher.

Example

Buyer pays $5M for an agency generating $700K of pro forma EBITDA, $350K of after-tax cash flow per year, growing 4% annually. Five-year cash flows plus exit at 7.5x: roughly 18% IRR. That's right in the buyer's target range — competitive bid territory.

How MyAgencyValue uses this

IRR is computed in Tier 3's 15-year cash flow projection (in development).

Related terms

EBITDA Multiple

An EBITDA multiple values an insurance agency at a fixed multiple of its normalized EBITDA, typically 4.5x to 12x depending on agency size, growth, and book quality.

Last reviewed: April 24, 2026

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