Orange County’s largest insurance broker is counting on its new majority owner to boost growth prospects for the coming year.
The unspecified majority stake in Newport Beach-based Alliant Insurance Services Inc. previously was held by Blackstone Group LP, which in November sold that interest to another New York-based private equity firm, Kohlberg Kravis Roberts & Co.
There’s been heightened deal-making in the insurance industry generally, ahead of an anticipated increase in the capital gains tax rate in 2013. But Alliant’s chief executive, Thomas Corbett, said the KKR’s buy won’t alter Alliant’s local commitment.
“As far as headquarters go, we’re not going anywhere,” Corbett said. “We’ll continue to grow the company where we are. There won’t be changes in structure of management, offices or operations, except we’re constantly looking for expansion.”
KKR has more than $66 billion in assets under management with investments in 79 companies worldwide, including food distributors, consumer-goods retailers, software companies and Web-hosting service providers.
“KKR is going to bring opportunities to us,” Corbett said. “We hope to have the opportunity to become the broker for some of these other KKR companies.”
Terms of the sale to KKR weren’t disclosed. But Corbett suggested the price was higher than when Blackstone bought Alliant from New York-based Lindsay Goldberg & Co. in 2007 for $1.1 billion.
“The company has grown substantially over the last five years, and this transaction value would reflect that,” he said. Alliant had $462 million in 2011 revenue, $54.5 million of which was generated in OC. The company has roughly 200 employees here and a total of 1,500 companywide.
Alliant provides employee benefits, property and casualty, and other financial products and services to about 20,000 clients nationwide. Its customer base includes municipalities, tribal Indian nations, law firms and hospitality groups.
The sale to KKR marks the fourth private equity partnership for Alliant during the past decade or so. The founding of Alliant in 2000—then known as Alliant Resources Group Inc.—involved Chicago-based GTCR Golder Rauner LLC.
“Private equity firms have been majority owners of the company since 2001,” Corbett said. “We like that kind of ownership structure. It’s not that they own the company outright; they are partners and majority owners. The internal ownership management and employees-ownership have always been important. We currently own over 40% of the company, and we will own between 30% and 40% of the company after the KKR deal.”
Tax issues were “definitely in consideration” at the timing of the KKR deal, he said.
“That’s a motivation of closing it by year-end,” Corbett said.
Other Deals
Other recent deals involving insurers included Toronto-based private equity group Onex Corp., which agreed last month to buy Briarcliff Manor, N.Y.-based USI Holdings Corp. from Goldman Sachs Group Inc. in New York for $2.3 billion.
In April, Charlotte, N.C.-based insurance distributor AmWins Group Inc. partnered with New Mountain Capital LLC in New York on a $1.3 billion recapitalization.
Locally, Confie Seguros Holding Co. in Buena Park was acquired last month by Boston-based Abry Partners LLC on unspecified terms. Confie primarily serves Latino customers in the U.S. and targets the auto insurance business. It was established in 2008 with a $75 million investment from San Francisco-based private equity firm Genstar Capital LLC.
Some of the recent deal-making may have been timed to get ahead of the capital-gains changes, but they also reflect a strengthening in the insurance industry.
“We’ve come through a very soft period over the past few years with many insurance businesses, which will be improving in the next couple of years,” said Allan Siposs, managing director of Irvine-based financial advisory FMV Capital Markets Inc.
Workers’ compensation and liability insurance rates are expected to increase 10% to 30% in the near future, he noted.
“That has buyers interested,” Siposs said.
Attractive qualities of brokerage firms include relatively low risk profiles and recurring revenue bases, Siposs said.
“Cash flows and profit margins on a well-run brokerage are high,” he added. “Brokers don’t have a lot of expenditure requirements. It’s the classic selling environment.”
Cash surpluses at equity firms also are driving deals, said Bryan Gadol, a partner at the Costa Mesa office of Minneapolis-based law firm Dorsey & Whitney LLP.
“There’s a large amount of money that private equity firms are trying to deploy prior to their capital commitments’ expiring,” Gadol said.
