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Kohlberg & Co.'s purchase of Risk Strategies Co. positions the broker for rapid growth by acquisition and furthers the trend of private equity firms investing in commercial insurance intermediaries.
The deal, announced last week, gives Mount Kisco, N.Y.-based Kohlberg a majority of RSC stock.
Financial terms of the deal were not disclosed.
Boston-based RSC now will have “substantial additional equity capital” with which to make acquisitions and grow its market presence, the companies said.
“This is reflective of the continuing interest of private equity in the insurance brokerage space,” said Timothy J. Cunningham, managing director of Chicago-based Optis Partners L.L.C., an investment banking and financial consulting firm.
In addition to capital sourced from the private equity firm's recently closed $1.6 billion fund, Kohlberg Investors VII, RSC now can access a pool of M&A expertise at Kohlberg. The firm has completed 59 platform investments and 114 add-on acquisitions with an aggregate transaction value of about $9 billion since it was founded in 1987.
As part of the deal, insurance industry veteran Roger E. Egan has joined RSC's leadership team as executive chairman. Mr. Egan previously was CEO of Integro Ltd. and president of Marsh Inc.
“Risk Strategies Co. is a very successful middle-market company that has been growing and establishing the beginning of a national platform,” Mr. Egan said.
“Our goal with Kohlberg was to find a firm known for great client service and build upon that.”
Mr. Egan said that RSC, founded in 1997 and ranked No. 61 in the 2012 Business Insurance ranking of the top 100 U.S. commercial insurance brokers, would look to expand rapidly.
“We want to grow pretty quickly,” he said. “Through a combination of acquisition and organic growth, we want to be in the top 25 brokers in the U.S. and from there, top 15.”
Deals will be especially helpful as the company looks to establish a greater national presence, he said.
“Our geographic footprint is strong in many places, but needs to be amplified in New York, Chicago and Southern California,” Mr. Egan said, because they are large metropolitan areas and hubs of commercial insurance.
Scott Birnbaum, operating partner at Kohlberg, said mergers and acquisitions are a core competency of his firm and that the RSC deal contained privately held funds set aside expressly for acquisitions.
“Kohlberg has tremendous interest in M&A in terms of consolidating an industry sector,” Mr. Birnbaum said.
“RSC will make acquisitions strategically; some will be large and some will be smaller. It has to strategically fit for us to pursue it, but we are cautiously optimistic about the acquisition pipeline,” he said.
The deal shows Kohlberg's positive outlook on the commercial insurance brokerage industry as a whole, Mr. Birnbaum said.
“We have spent a significant amount of time looking at the insurance brokerage industry,” he said.
“We took a proactive approach to building a sizable presence in insurance brokerages.”
Mr. Birnbaum also stressed that the deal leaves RSC's company's executive team, including RSC CEO and founder Michael Christian, intact while giving it greater resources to serve its clients, which are primarily middle-market and upper-middle-market firms.
“We think this is a great time to make such an acquisition,” Mr. Birnbaum said.
“We have a great platform with RSC and a great team and a unique position in the market.”
Mr. Cunningham also expressed optimism that with RSC, Kohlberg chose a good vehicle to enter the market.
“Risk Strategies is a good company,” Mr. Cunningham said.
“They have a nice platform.”