Wholesale insurance brokerage AmWINS changes hands in private equity deal

M. Steven DeCarlo

CHARLOTTE, N.C.—AmWINS Group Inc. last week entered a definitive agreement for a $1.3 billion recapitalization with New York-based private equity firm New Mountain Capital L.L.C., which will acquire a 70% interest in the wholesale insurance brokerage.

For AmWINS, which was ranked as the No. 1 wholesale brokerage by Business Insurance last year based on 2010 premium volume of $4.1 billion, the deal will end its relationship with Parthenon Capital Partners L.L.C., which held a 55% stake in the company since 2005.

The Charlotte, N.C.-based wholesaler will not rebrand, change management or make any other changes as a result of New Mountain's ownership, and employee shareholders will continue to own 30% of the company, which is valued at $160 million, said M. Steven DeCarlo, CEO of AmWINS.

Employee share dropped from 45% to 30% as employees were allowed to cash out as part of the transaction, Mr. DeCarlo said.

Subject to regulatory approvals and closing conditions, the transaction is expected to close within 60 days. Other terms of the transaction were not disclosed.

The deal reflects the normal cycle of private equity groups' short-term investment in brokerages, industry experts say.

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Because several brokers went through leveraged buyouts and recapitalizations in 2006 and 2007, investors are ready to capitalize, said Bruce Ballentine, vp and senior credit officer for Moody's Investor Service Inc. in New York.

“This is perfectly within that vein,” he said.

“Typically, private equity investors want to capitalize their investment every five to seven years,” said Timothy J. Cunningham, a partner at Chicago-based OPTIS Partners L.L.C.

New Mountain will be AmWINS' third private equity owner since its start in 2002, preceded by Parthenon Capital and Pegasus Capital Advisors L.P.

New Mountain did not return calls seeking comment.

AmWINS has grown during the past 10 years, organically and through the acquisition of approximately 30 companies, Mr. DeCarlo said.

“Our goal is to continue to do that. Our strategy has been consistent,” Mr. DeCarlo said, noting that AmWINS will continue to acquire companies that fit its strategy.

“It's time for (Parthenon Capital) to exit because we've been with them for seven years and that's normal course for a private equity group,” he said. “We will pick up a new partner with New Mountain to continue our strategy of growing and diversification.”

AmWINS registered for an initial public offering, but it withdrew the filing in 2007. However, that option still is viable, Mr. DeCarlo said.

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“Every option is on the table,” he said. “We think we are a public company after the normal three, five, seven years of being part of New Mountain.”

The recapitalization is likely to have little change on AmWINS' operations, industry experts say.

“It's business as usual” for AmWINS, Mr. Cunningham said.

AmWINS is “likely to continue their course of moderate organic growth and occasional small to midsized acquisitions,” Mr. Ballentine said.

The deal also could signal that private equity firms are showing increased appetite for insurance brokerage operations, experts say.

The wholesale brokerage business is more attractive to investors today, Mr. Cunningham said. “It was near doldrums three, four years ago. It's certainly coming back, I think even more so than the retail business,” he said.

In a prolonged soft market, retail brokers often compete in the wholesale space, but as the market hardens they go back to more traditional lines, Mr. Ballentine said.

In AmWINS' case, New Mountain's partnership is a vote of confidence in both management and the wholesale space, said John Wicher, principal at John Wicher & Associates in San Francisco.

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“There have been over the last cycle—which has been almost 10 years for the wholesale space—questions about its continued relevancy, whether they would be disintermediated as a result of the retailers having more direct access to product,” he said.

“This settles ownership exactly at the time the retail agent is going to his or her customers with the need to look to that market in the coming years for both capacity and being able to place difficult risks,” Mr. Wicher said.

“What we hear and know is that there remains a lot of private equity interest in the space,” Mr. Cunningham said. “I think it's even more attractive now since we're seeing some lift in rate and an improving economy.”

Jim Auden, Chicago-based managing director in Fitch Ratings Inc.'s insurance group, said the brokerage business tends to be heavy with acquisitions.

“All the largest brokers have grown through acquisitions over time,” he said. “There's a history that there's an ability to buy and sell companies which makes the investment attractive to private equity firms,” he said.