A private-equity firm is snapping up a large player in the property-casualty and employee benefits insurance markets.
GS Capital Partners, an affiliate of Goldman Sachs Group Inc., New York, has agreed to acquire USI Holdings Corp., Briarcliff, N.Y., for $993 million and to pay back about $400 million in USI debt.
The companies hope to complete the deal by June 30, USI says.
Investors greeted the deal announcement by increasing the price of USI’s stock to $16.55 per share at the close of trading today, from $15.55 at the close of trading Friday.
USI was founded in 1994 and now has 68 offices in 19 states and 3,000 employees. Company executives announced an interest in going private in late 2006.
Although USI has had trouble meeting securities’ analysts earnings expectations, it is attractive to investors because it has not been implicated in the brokerage contingency fee scandal and has not agreed to give up contingent commission revenue, according to Donald Light, a senior analyst at Celent L.L.C., Boston.
“Private equity firms are awash in cash right now, and because of the upheavals in the insurance brokerage business, it has become very attractive to them,” Light says.
Once GS Capital completes the USI deal, USI may be able to use private-equity funding to buy smaller agencies without having to worry about the immediate effects of the deals on its income statement, Light says.
David Lewis, an analyst with SunTrust Robinson Humphrey in Atlanta, also predicts that USI will use private-equity funding to acquire more agencies.
Throughout the insurance brokerage sector as a whole, massive deals probably will be rare, but consolidation is likely to continue in the $1 million to $10 million revenue range, Lewis predicts.