Like a dinner guest reaching for a second helping of a particularly sumptuous dish, private equity firm GTCR is moving back into the position of majority owner of insurance brokerage AssuredPartners, after striking a deal with Apax Partners.
The acquisition valued the broker at $5.1bn, roughly 15x Ebitda based on an available estimate of $350mn. This compared with a 15.5x estimated multiple in Canadian private equity buyer Altas Partners’ deal for a stake of broker Hub International last year. In 2017, Onex Group sold a stake in broker USI Insurance Services at a multiple of about 12x Ebitda.
AssuredPartners’ valuation shows that appetite remains strong for brokers within the private investment sector, given their steady cash flows and capacity for growth by absorbing smaller brokers. With liquidity so easy to come by, it seems unlikely that many insurance brokerages will need to IPO any time soon – and join the likes of Aon, MMC, Willis Towers Watson, AJ Gallagher and Brown & Brown as publicly traded companies.
“Net-net the continued interest by private equity in the brokerage space lends support to our positive view on the insurance brokerage sector and the strong organic growth that we expect the group to see over the coming year,” wrote Wells Fargo analyst Elyse Greenspan in comments on the deal.
One exception was Goosehead Insurance, a Westlake, Texas-based personal lines and small business insurance agency. Goosehead’s shares surged mover than 57 percent in its first day of trading after an IPO at $10 per share. The stock was trading at $31.48 per share in the afternoon, New York time, on Monday.
Aaron Cohen, managing director of Chicago-based GTCR, said his firm is happy to have the broker in its stable again after initially selling its stake in 2015.
“We had an incredible experience working with the Assured team and have watched with admiration their continued success over the last three years,” he noted in a statement when the deal was announced last week. He looks forward “to the continued expansion of the AssuredPartners platform”.
AssuredPartners is one of a number of major privately held brokers, including Acrisure and Hub, that have used M&A to fuel growth. The firm struck 19 deals in the first half of last year, according to Optis.
Co-founded by Jim Henderson and Tom Riley, AssuredPartners was launched in 2011 with backing from GTCR. Under GTCR’s initial stint of majority ownership, the broker completed 112 acquisitions and grew annual revenue to more than $500mn. That figure has since doubled to more than $1bn, Cohen noted.
Apax has a successful track record of backing broker consolidators in the US retail market via leveraged buyouts. It bought into Hub in 2007 and sold out to Hellman & Friedman in 2013.
While the fund Apax VIII has exited its stake in AssuredPartners, the private equity firm is hanging on to a share of the broker by co-investing alongside GTCR through Apax IX, according to a statement from the firms.
“Apax has been a superb partner for Assured over the last three years and we are delighted to be renewing this successful partnership,” Henderson said. “At the same time, we are excited to welcome back the GTCR team who we know very well, and value their expertise and insight.”
Broker acquisitions have generally been on an upward trend since around 2013, although they slipped somewhat in 2018, according to data from Optis. Broker deals fell 16 percent in the first half of 2018 compared with the same period in 2017, with 280 deals in the first half of last year compared with 333 in the first half of 2017.
Optis partner Daniel Menzer called the drop-off in activity an “aberration.” The firm also noted that duels fueled by private equity capital continued to predominate, accounting for just over two-thirds of transactions in the first half of 2018.
Agency valuations were considered at a peak in the first half of 2018, according to Optis. However, the AssuredPartners deal with GTCR suggests private equity buyers do not foresee any drop-off from that level in the near future, or in broker acquisition activity.
“Many owners of vibrant and solid agencies are still looking for the right buyer, and at least as many active and aggressive buyers are ready to meet that demand,” Menzer said in July 2018.