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SAN MATEO, Calif.A new upper middle-market brokerage will hit the streets of California this week with two veteran insurance executives at the wheel.
Dan F. Francis, former president and chief executive officer of ABD Insurance & Financial Services Inc., and John G. Hahn, former president of BISYS Commercial Insurance Services Inc., will formally launch Edgewood Partners Insurance Center on completion of Edgewood's first acquisition, which is expected to close early this week.
In June, Greenwich, Conn.-based private equity firm Stone Point Capital, together with Messrs. Francis and Hahn, committed up to $100 million to build Edgewood. Late last month, they reached agreement to acquire San Mateo, Calif.-based Calco Insurance Agents & Brokers Inc., a $13 million California retail brokerage that will serve as Edgewood's initial platform.
Messrs. Francis and Hahn hope to build a $100 million to $150 million revenue brokerage in California within the next three to four years through a combination of acquisitions and new hires, which Edgewood hopes to lure away from competitors by offering an equity stake in the brokerage.
The launch of Edgewood comes shortly after the two men left their respective brokerages, which announced within days of each other acquisitions that would result in merging the firms into larger competitors.
In May, Mr. Francis resigned from Redwood City, Calif.-based ABD just days after Wells Fargo & Co. announced it was acquiring Greater Bay Bancorp and would merge Greater Bay's ABD brokerage operation into Chicago-based Wells Fargo Insurance Services Inc. (BI, May 14).
Mr. Hahn left San Francisco-based wholesaler BISYS Commercial Insurance in late June, after the May announcement that New York-based private equity firm J.C. Flowers & Co. would acquire BISYS' wholesale operations and merge them into the larger Crump Insurance Services Inc. (BI, May 7).
Messrs. Francis and Hahn, who have been friends for years, said they opted to build something new rather than sticking around through the acquisitions.
"We had amazing serendipity in what was going on in parallel," Mr. Hahn said. "And we ended up saying 'Why don't we try something fresh, different and new."'
"We thought that by doing something independent and not public, and by having a real mechanism where we can create equity opportunities for key talent we bring in," the brokerage could be successful, he said.
While Mr. Francis said it was a "difficult" decision to leave ABD, he "couldn't be happier" with the response he's received about Edgewood. And "being in business with my best friend is just a bonus."
First order of business
A few weeks after securing capital, Edgewood reached a deal with Calco's owner, Distribution Partners Investment Capital L.P., to acquire the 70-year-old retail property/casualty and benefits brokerage for an undisclosed amount.
While Calco instantly gives Edgewood $13 million in revenues, 68 employees and three California offices in San Mateo, Orange and Sacramento, its business has shrunk tremendously in recent years.
In 2002, the last time Calco appeared in Business Insurance's annual rankings, it was the 51st-largest broker of U.S. business with 140 employees and $31.3 million in 2001 brokerage revenues.
Mr. Francis acknowledges that Calco has "clearly lost some business" over the last few years and that it will take a "lot of hard work" to get the firm back to where it was six to seven years ago. Nevertheless, it is a "compelling" deal for Edgewood, given its geographic footprint in California and business platform, he said.
In addition to general property/ casualty business, Calco brings an employee benefits practice, a personal lines practice and a number of specialty niches including high-tech, biotech and construction, which Edgewood plans to further build out, Mr. Hahn said.
Once the deal closes, Messrs. Francis and Hahn will turn their focus toward building the operation, they said.
"We have three acquisitions in the pipeline" and there "are 20 to 25 major producers that we're looking at right now," Mr. Hahn said.
One of the ways Edgewood will entice producers to join the firm is by offering an equity stake in the company tied to production levels.
"This will be an opportunity for people who want to step up to earn real equity"--not stock options or phantom stock, but real equity, Mr. Francis said.
And if all goes well, said Mr. Hahn, sometime "down the road, whenever it is right, there will be some kind of wealth creation event and there will be a lot of people celebrating."
While Edgewood has plans to build its operations throughout California, it has no plans to expand outside the state.
"We don't need to go anywhere else," Mr. Hahn said. "It's where we have the most credibility and I think we can execute best in this spot."
Industry consultants say the nascent broker has the right formula.
"When you stand back and look at the package of California, which is in itself the 11th-largest economy in the world, talented people (in Messrs. Francis and Hahn), who have proven themselves time and time again to be successful, and Calco, which is a good platform, I think you have a formula for some success," said John Wicher, principal of John Wicher & Associates in San Francisco.
"I don't mean to be bubbly about this, but this is one of those things where you certainly don't stand back and shake your head and say 'My goodness, another roll-up, big snooze.' This is not a big snooze," Mr. Wicher said.
Thomas Linn, senior vp at Marsh, Berry & Co., who heads the West Coast mergers and acquisitions practice in Dana Point, Calif., noted that he is particularly impressed with Edgewood's focus on putting equity ownership in the hands of producers.
"Organizations that are producer-driven in my view are more likely to have success than those that are, say profit-driven or service-driven," Mr. Linn said.