So far in 2019, US private equity firms are conducting more add-ons than ever before. Through the first nine months of the year, 68% of all PE investments in the nation have been additions to existing portfolio companies, according to PitchBook's 3Q 2019 US PE Breakdown, a record figure driven by firms' pursuit of value creation in an environment otherwise marked by skyrocketing deal multiples.
One notable example of the add-on strategy's rise over the past several years is the story of Abry Partners and The Hilb Group, a middle-market insurance broker headquartered in Richmond, VA. Now, that story could be headed toward a $1 billion conclusion.
Back in June 2015, Abry took over Hilb from BHMS Investments in a rather unremarkable buyout. In the ensuing four years, the pair have combined to complete more than 50 add-ons, according to the PitchBook Platform, or just about one such deal every month. The moves have allowed Hilb to explode in size; despite being founded in 2009, it's already grown to more than 60 branches that combine to offer services in all 50 states.
Sourcing and conducting due diligence on more than four dozen deals has surely kept Abry's staff busy. But it might soon pay off in a major way. Abry is nearing a deal to sell Hilb in a move that could give the agency an enterprise value of more than $1 billion, according to Reuters, a maneuver that would be one of the largest PE-backed insurance exits of 2019.
In building Hilb into a budding insurance conglomerate, Abry took a truly national approach, traversing the US to find small agencies that fit its acquisitive criteria. Massachusetts has been home to 24% of Hilb's add-ons over the past four years, per PitchBook data, but no other state accounts for more than 10% of its deal count. And Abry and Hilb have dipped into locales that typically aren't hot spots for PE activity: The two have teamed to conduct takeovers in places like Greer, SC; Waitsfield, VT; Springdale, AR; and Garrett, IN, to name just a few.
As it so happens, Hilb isn't the only instance of Abry turning to add-ons as a means of consolidation in the highly fragmented insurance industry, a sector that's drawn increasing interest in recent years from private equity firms across the spectrum.
Since 2012, Abry has been the majority owner of Confie (fka Confie Seguros), a Los Angeles-based insurance agency that focuses on serving Hispanic clients. In the seven years since, Abry and Confie have conducted 78 add-ons, per the PitchBook Platform, with the bulk of those deals taking place between 2013 and 2016. Perhaps reflecting its emphasis on the Hispanic population, Confie has been a bit more geographically focused than Hilb: Nearly 42% of its add-ons under Abry's ownership have been in Florida, Texas or California. But Confie has been even more aggressive than Hilb in overall growth, building out its national network to over 800 locations.
In terms of finding an exit, however, Abry hasn't been so successful when it comes to Confie.
Reports that the Boston-based firm was seeking to sell Confie first surfaced in 2015, with AltAssets indicating a possible $1.6 billion price. Then, about a year ago, Buyouts reported that Abry had called off a second attempt to unload the business. Around the same time, Confie announced a new $220 million credit facility led by Goldman Sachs and Barclays; in a press release, Confie chief executive Cesar Soriano said the new backing would allow the agency to continue pursuing deals from a "robust pipeline of high-quality acquisition targets."
It's a statement that seems to reflect Abry's general policy toward add-ons and managing a platform company in the insurance industry: When in doubt, build it out.
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