RedBird-Backed Constellation Buys Into Allstar Financial

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.

Ardent Leisure Enters Into Partnership Transaction With RedBird Capital Partners For Main Event Entertainment

Ardent Leisure Group Limited (“Ardent Leisure”) (ASX:ALG) today announces that U.S.-based private investment firm, RedBird Capital Partners (“RedBird”), will invest US$80 million into Ardent Leisure’s U.S.-based subsidiary, which holds a 100% interest in Main Event Entertainment (“Main Event” or “the Company”) to enhance the financial flexibility of Main Event and position the Company for future growth.

Pursuant to the announced transaction, RedBird will invest US$80 million into Main Event in exchange for a 24.2% preferred equity interest, valuing Main Event at an implied enterprise value of US$424 million (Based on net debt and unpaid payable liabilities as at 31 May 2020 and post estimated transaction costs) and a EV/EBITDA multiple of 8.0x based on CY19 Adj. EBITDA. The invested capital by RedBird will be used exclusively to support Main Event.

In conjunction with the transaction, RedBird has been granted an option to acquire an additional 26.8% interest in Main Event from Ardent Leisure exercisable between July 2022 and July 2024 (“the Option”). The valuation of the additional interest will be determined at a future date, based on Normalised Pro Forma EBITDA at that time and subject to a minimum equity floor price. In addition, the governance framework contains typical and customary minority consent rights related to the preservation of the economic integrity of the minority holder’s interest and substantive operational matters which will result in all material decisions concerning the operations of Main Event being made with the partner. The initial board will comprise of Main Event CEO Chris Morris, Ardent Leisure directors Gary Weiss and Brad Richmond, as well as RedBird Partners Andrew Lauck and Dan Swift.

Dr Gary Weiss, Chairman of Ardent Leisure, said “We are excited by this new partnership with RedBird which not only reinforces Main Event’s financial strength and liquidity, but also provides a value-added strategic partner who can help drive the Company’s growth and expansion plans in the United States. We have a first-class management team in place at Main Event and, together with RedBird, are confident the Company will navigate through the current challenging environment and thrive in the future.” 

Gerry Cardinale, Managing Partner of RedBird, said “We are very pleased to announce this partnership with Ardent and the exceptional management team at Main Event. Through our own operations in Dallas, Texas, we have witnessed firsthand Main Event’s growth as a leading brand in a resilient and fast growing family entertainment market. RedBird’s focus on building high-growth companies in sports and entertainment and expertise in delivering premier content to consumers will be highly complementary to the Main Event platform as it looks to expand throughout the country.”

Chris Morris, CEO of Main Event, said “We are enthusiastic to partner with RedBird during the next phase of growth for Main Event. After undertaking an extensive review of potential partnership opportunities for the Company, it has become clear RedBird and Main Event share the same core values, commitment to growth and vision for the future of our Company. We are confident Redbird’s strategic contributions will further support our continued efforts to be the premier family and social entertainment brand in the United States. We look forward to a great, long term partnership.” 

There are no conditions to the transaction, or shareholder approval, and the initial investment is expected to settle on 15 June 2020.

The actions announced today provide Main Event with the financial support and flexibility in the medium term to adapt to the current challenging macro environment. In addition, the transaction provides potential capital to Ardent Leisure in the future in the event that the Option is exercised, and enables the Ardent Leisure shareholders to continue to benefit from the potential growth in Main Event through their continued interest in the business. No aspect of the transaction will result in the issue by Ardent Leisure of any equity in Ardent Leisure Group Limited to RedBird.

Goldman Sachs served as exclusive financial advisor to Ardent Leisure and Main Event Entertainment; Weil, Gotshal & Manges LLP served as legal advisor. Fried, Frank, Harris, Shriver & Jacobson LLP served as legal advisor to RedBird.

Overview of RedBird Capital Partners 
RedBird is a principal investment firm which provides flexible, long-term capital to help entrepreneurs grow their businesses. RedBird seeks investment opportunities in growth-oriented private companies where its long-term capital, investor network and strategic relationships enable business owners to achieve their corporate objectives. Founded by Gerald Cardinale, RedBird has over $3.5 billion of equity under management to support its entrepreneur-led platforms, connecting patient, flexible capital with business founders to help them outperform operationally, financially and strategically.

Business Update 
As previously announced, on 17 March 2020 Main Event made the decision to temporarily close all of its centres nationwide in response to the US government’s decision to issue strict guidelines to stop the spread of COVID-19. Since the closure, the Company has closely monitored its capital requirements and has implemented a number of measures to conserve capital and maintain operating liquidity. Main Event began to reopen select centres from early May 2020 with limited offering and capacity in accordance with local mandates. As of today, 28 of Main Event’s 44 centres have reopened, including all of the Company’s Texas locations, with the ability to operate with few limitations on offerings. The Company anticipates more centre openings by the end of June. For the centres that have re-opened, recent trading has been encouraging with revenue increasing sequentially each week, resulting in several centres above or near 4-wall EBITDA break-even.

The Company will continue to monitor, on a market-by-market basis, the easing of Government-mandated shelter- in-place orders and will make the decision to re-open its remaining centres as soon as practicable ensuring the utmost safety of its team members and guests. The Company has enhanced its already robust safety standards through the addition of personal protective equipment for team members, introduction of social distancing measures throughout the centres, a modified service model to increase frequency of sanitizing high-touch areas, and availability of sanitation products for guests.

Main Event has also obtained significant support from its lenders through a number of amendments to its Credit Agreement, including obtaining a waiver of its total net leverage covenant through to and covering the March 2021 quarter, which enhances the Company’s liquidity position and financial flexibility.