M&A Advisory

Create a Portfolio Program for Us ABD, You’re my Only Hope

I feel a strange disturbance in the Force.   

Insurance and Employee Benefits Portfolio Programs haven’t been relevant in the almost 20 years that I’ve served private equity firms. Something has clearly changed, and I’m afraid that portfolio programs will be the only hope that the Federation (your portfolio companies) has against the Republic (insurance companies). 

The Force is so strong in me that I had to write this blog. Perhaps I’m an insurance Jedi and never knew it. Before you read on, know that there are a lot of Darth Vader quotes in this blog, so it might be the dark side that’s speaking to me. 

“I have the high ground.” – Obi-Wan 

You have market leverage… 

You need to know that you have considerable buying power across your portfolio. Private equity professionals often ask me about ABD’s market clout (by the way, we built the 40th largest broker in the U.S. in only 8 years, so we have plenty).  My answer to that is usually, “you have more clout than any broker if you would just use it!”   

While your portfolio might not be homogenous enough to get every policy with the same insurance company, a lot can be accomplished in areas that have high premiums and require a significant amount of broker technical expertise. Consolidating your purchase and focusing in on one insurer (where possible) will reap significant benefits for your companies.  

“I’ve been waiting for you, Obi-Wan. We meet again, at last. The circle is now complete. When I left you, I was but the learner; now I am the master.” – Darth Vader 

Insurers are now leading the way… 

I have found that portfolio program conversations only happen in earnest during a market downturn.  The last one was obviously due to the 2008 recession. When I tried to sell insurance companies on the concept back in 2008, they just didn’t understand how private equity transactions worked.  Fast forward to 2020, and insurance companies are explaining private equity to me! They understand the nuances of private equity in a way that I would have never imagined.   

Most importantly, insurers understand that anything that is created must be portable at exit. of savings during your hold period does you no good if it costs a buyer .50 to replicate the offering.  Negative EBITDA adjustments are the easiest way to end a relationship between an insurer and private equity firm. 

“It’s the ship that made the Kessel run in less than twelve parsecs. I’ve outrun Imperial starships. Not the local bulk cruisers, mind you. I’m talking about the big Corellian ships, now. She’s fast enough for you, old man.” — Han Solo 

You have integration concerns… 

When you think about how the integration process would work, images of Obi-Wan’s first impressions of the Millennium Falcon probably come to mind.  Those concerns are rooted in truth because many of these efforts have ended before they really began because it is so challenging to integrate companies into a program and get it started.   

Today, some insurers have dedicated teams of professionals that focus on integrating your companies into the program.  Medical insurers will even provide financial incentives to your companies specifically for the extra time that it takes to make the change. 

“Never tell me the odds!” — Han Solo 

There is a high likelihood of success… 

I am convinced that every company in your portfolio will receive better coverage, enhanced services, and lower rates than they could receive on their own.  The cost savings is the most difficult piece to promise because some of your companies might be improperly insured and end up spending more than they did before. The rates that they will pay will be lower than they could get on their own, but in absolute dollars it will cost them more.  Other companies in your portfolio could save 25% or more.   Ultimately, it helps if saving money isn’t the only reason to implement the program. 

“Do. Or do not. There is no try.” – Yoda  

It all starts with a feasibility study… 

The first step of a well-executed process is to have us complete a feasibility study. With some limited information we will be able to tell you what’s possible and give our recommendation about whether or not to move forward.  It costs you nothing and will let you know if the ROI is significant enough to warrant your time and attention.  

“We would be honored if you would join us.” – Darth Vader

There has never been a better time for you to start this process. 

  • The Property & Casualty market was already hardening prior to COVID-19, and now the market is even worse. Increased pricing, coverage restrictions, and reduced capacity are the norm.  

  • COVID-19’s impact on the U.S. healthcare system is hard to put into words. Left unchecked, companies with as little as 50 employees will consider a self-insured arrangement because that is the only way to truly control costs.  Be sure to read our recent blog post on Employee Benefits Matters in Due Diligence.  

I am convinced that every private equity firm will strongly consider a portfolio program between now and the end of 2021. You will be ahead of the curve if you are proactive and go down the path in 2020..  

“I find your lack of faith disturbing.” — Darth Vader 

Really?  You need more convincing?  Maybe I’m not a Jedi after all. 

“I am altering the deal. Pray I don’t alter It any further.” – Darth Vader

ABD recently created a cross-disciplinary team to focus intently on portfolio programs. This effort has brought together our best and brightest and has buy-in from executives at our highest levels.  Check out our recent announcement, “M&A Advisory Announces Insurance and Employee Benefits Portfolio Program Offering.” 

CONCLUSION: Leia: “I love you.” Han Solo: “I know.” 

His delivery gives you the feeling that he has heard the words “I love you” before, said the words back without meaning them, and problems ensued. He wasn’t ready to say the words, and you probably aren’t either.  We get it.  Just give us a chance, and your feelings will change.  

Please contact ABD if you would like to learn more about portfolio programs.  As always, we appreciate the opportunity to be of service.   

May the Force be with you.   

Josh Warren is a Senior Vice President and M&A Advisory Practice Leader at ABD Insurance and Financial Services. Prior to joining ABD, Josh spent 15 years at Equity Risk Partners, an insurance brokerage and consulting firm that concentrated exclusively on private equity firms, venture capital firms, and family offices. Josh was twice named a Power Broker by Risk & Insurance Magazine in the Finance – Private Equity category. He was also named to multiple “40 Under 40” lists, including Business Insurance magazine, Risk & Insurance magazine, and the M&A Advisor. He can be reached at josh.warren@theabdteam.com or 312-300-5759.

Josh Warren
The Author
Josh Warren

Senior Vice President

Josh is a Senior Vice President and M&A Advisory Practice Leader of Newfront Insurance and Financial Services. His responsibilities include operational leadership, client management, program design, and risk analysis for alternative asset managers and Newfront clients facing a merger or acquisition.

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