Article originally published by The Insurer
As first reported by this publication last year, former Integro CEO Goldstein had teamed up with private equity investment firm RedBird to create a platform to buy-up entities in the US insurance market.
The platform was officially launched earlier this year and is understood to have already concluded several transactions as it targets specialty MGAs, program administrators and wholesalers.
RedBird has been active in the financial institutions space with deals to buy alternative asset management platform Vida Capital and life insurance-focused asset manager Avmont.
Although Constellation has been executing its M&A strategy largely under the radar, sources said that the completed deals represent $900mn+ of premium volume and an estimated $35mn+ of Ebitda.
Constellation is understood to have a flexible approach to the ownership structure in deals which can see it take full or partial stakes in intermediaries.
Although its acquisitions so far are understood to have focused on North America, it has also shown an appetite for potential deals in the UK.
The biggest transaction so far is a deal to take a significant stake in Atlanta-based Allstar Financial, which includes a number of program administrators and MGAs in its stable, including Prime Specialty and Venture Underwriters.
The Insurer revealed last October that Allstar Financial was working with boutique investment banking advisory firm Evercore over a potential sale.
At the time it was reported that the company wrote and placed premium volume in excess of $550mn, with revenues of around $165mn.
Its various program and MGA subsidiaries write a range of segments, with Prime Specialty focused on construction, Venture Underwriters on primary and excess liability, Allstar Transportation writing commercial auto including trucking, and other MGAs specializing in surety, forestry and logging.
The group’s Arkon Special Risk operation is a wholesale broker specializing in commercial general liability, excess liability, property, inland marine, environmental and liquor liability in the Northeast of the US. MGA and wholesaler Allstar Underwriters operates in personal lines, small business solutions, specialty brokerage and commercial auto.
Verticals build and common tech platform
According to sources, Constellation will look to build off its initial acquisitions to add verticals into property, professional liability and other areas as it continues its M&A strategy.
This publication reported last year that Goldstein would look for a first acquisition then use that as a platform to consolidate in the sector.
It is thought the start-up will not look to fully integrate the companies it acquires but has been building an integrated common technology platform that MGAs, program administrators and wholesalers will operate from.
Goldstein has experience of a series of acquisitions in the US and London in his previous role at Integro, which was a New York-based broker with operations on both sides of the Atlantic before it was broken up and sold – largely to EPIC Holdings – in a deal announced late last year.
New York-based RedBird describes itself as a provider of long-term, flexible capital that maximises its ability to build companies and compound value over time in partnership with owners and entrepreneurs.
The firm was founded by former Goldman Sachs partner Gerry Cardinale and has been involved with over $7bn in principal investments in North America.
Last month it was reported that it had raised nearly $1.2bn of a targeted $1.7bn for a third fund. Disclosed limited partners included Los Angeles County Employees Retirement Association. RedBird has also had a long-term affiliation with Canadian pension fund Ontario Teachers.
The Insurer comment
Constellation’s bid to consolidate in the MGA, program and wholesale space comes at a time when M&A continues to be active despite the Covid-19 impact that means deal volume will not keep pace with the record numbers seen in the last couple of years.
In the distribution space, investors – led by private equity – continue to be drawn to the appeal of brokers, MGAs and program administrators as cash businesses that generate fee and commission-based income, leading to a record volume of deals.
There has been talk of multiples being affected by uncertainty around the Covid-19 impact on businesses – and potential sellers that focus on directly hit segments such as hospitality will have either significantly recalibrated or taken themselves off the table.
But generally, with hard market pricing offsetting the macroeconomic impact in many segments of the program and wholesale sector, sources have said that valuations have not taken a significant dent.
Instead the main changes appear to be around structure of deals and the way consideration is paid, with a much greater weighting to the earn-out phase than upfront payment.
Consolidation platforms are typically able to benefit from the natural arbitrage between a scaled business and the higher multiple it is valued at and the lower multiples it can roll-up smaller firms for.
They can also build value by offering more efficient tech and operating platforms that acquisitions can plug into, as well as providing economies of scale, larger geographic footprints and cross-sell opportunities.