On Monday, Goldman Sachs Capital Partners VI, a private equity
The Goldman Sachs Group Inc.
), agreed to divest USI Insurance Services LLC to Canadian
private equity firm -
) for $2.3 billion. Subject to certain customary conditions and
regulatory approvals, the deal is anticipated to be completed by
the end of 2012.
New York-based USI is an insurance broker acquired by GS Capital
Partners in 2007 for $1.4 billion. The amount also included the
settlement of USI's debt obligations. Therefore, selling off the
firm is a profitable deal for Goldman.
Operating through offices in Toronto, New York and London, Onex
is a private equity firm specialized in acquisitions and platform
acquisitions. The company has about $14 billion of assets under
On the other side, USI provides property, casualty, employee
benefit and retirement consulting services. Working with 3,300
employees from 100 U.S. offices, this ninth largest insurance
broker in US has been actively acquiring smaller insurance
agencies and brokers in recent years.
After being taken over by Goldman, USI has been successful in
integrating operations and has established itself among industry
leaders. It came up with differentiated acquisition abilities and
scope for strong organic growth. With a prudent management team,
USI has performed well over the last several years and has grown
Terms of the Deal
Since the employees of USI also invested in 2007 deal, they would
be co-partners with Onex in the USI deal. Alongside, in the USI
deal, Onex Partners III private equity fund is making an equity
investment of $700 million, in which Onex owns about 25%.
Therefore, upon the completion of the transaction, Onex, Onex
Partners III and employees of USI will be the owners of USI.
) acted as a financial advisor, while GS Capital Partners sought
financial advice from RBC Capital Markets LLC.
After-Effects of the Deal
According to Mike Sicard - CEO of USI, the insurance broker has
strengthened its foothold in the market by serving clients with
customized solutions. Therefore, it looks forward to the upcoming
partnership with Onex.
Moreover, the USI deal will aid Onex in strengthening its
foothold in the market and enhance its financial services.
Last week, another firm -
The Blackstone Group LP
) announced an agreement to divest its entire stake in the
specialty insurance brokerage firm - Alliant Insurance Services,
Inc. - to private equity firm,
Kohlberg Kravis Roberts & Co.
). In 2007, Blackstone acquired Alliant Insurance from New
York-based Lindsay Goldberg & Co. LLC for an estimated $1.1
Most notable deals of this sort includes
The Carlyle Group LP
) acquisition worth $3.3 billion announced earlier this year, of
a controlling stake in Getty Images Inc., which was earlier
acquired by Hellman & Friedman LLC for $2.4 billion.
Over the past few quarters, strong revenue growth has been
recorded by insurance brokers. This growth has been driven by
insurers who have inflated prices on the products offered in
order to offset huge catastrophe losses in 2011.
Therefore, good cash flow is anticipated in the insurance
industry which has attracted private equity firms. These firms,
in expectation of sturdy cash flow and small capital needs, are
inclined to acquire insurance brokers.
Generally, private equity firms invest in the private equity of
operating companies and aim toward maximizing the value of that
investment. They make longer-hold investments in explicit
investment areas in which they have expertise and exit at good
profits. Therefore, Goldman's divestment of USI reflects this
very strategy and we expect it to pursue other profitable
investment proposals to use the proceeds from this deal.
Goldman currently retains a Zacks #2 Rank, which translates into
a short-term Buy rating. We believe such profitable divestments
will be an appropriate step for the company and will help boost
shareholders' confidence, which might lead to positive estimate
revisions. This, in turn, could cause an improvement in the Zacks
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