HGGC Buys PCF Insurance, Setting Aggressive M&A Agenda
April 22, 2020
HGGC scooped up PCF Insurance as the commercial brokerage market sits insulated from covid-19-fueled economic volatility and is poised for consolidation, senior members of the firm told PE Hub. HGGC, a Palo Alto, California-based middle market buyout firm, joins BHMS Investments, management and employee owners, all of which will retain minority investments in the company. PCF, headquartered in Woodland Hills, California, is a retail insurance brokerage with a diverse offering of commercial lines, personal lines and employee benefits products. Led by CEO and Chairman Peter Foy, PCF has more than 400 employees across the U.S. and serves more than 40,000 customers. Having grown by more than 17x since 2017 — buoyed by 18 add-ons since 2018 — M&A will remain a crucial driver of growth for PCF, HGGC said. The company is looking at 10 additional acquisition opportunities in the near term across what remains a highly fragmented market, Steve Young, HGGC co-founder and president, told PE Hub. “Peter has been doing this for a while and has shown that M&A is something he can handle, and we’re going to accentuate that,” Young said. “I call this a very athletic business.” The commercial brokerage market in which PCF operates has historically proven less impacted by economic cycles than other industries, added Rich Lawson, CEO and chairman of HGGC. “[Corporates] don’t stop buying insurance in these cycles.” “In the midst of a crisis, we feel like PCF is very defensible,” Young added. Beyond M&A, PCF also is poised for organic growth. When interest rates are low, insurance carriers have less interest income, leading big carriers to offset that by charging more for their insurance products, Lawson explained. “Rising insurance prices means higher premiums and thus higher revenue for brokers like PCF.” More generally, insurance services companies like PCF encompass characteristics deemed attractive by private equity, Lawson said. Such companies are asset light, have high customer retention rates, strong recurring cash flow and revenue, minimal capital expenditure and strong EBITDA margins, he said. On average, insurance brokers have 90 percent retention rates and PCF exceeds that level, Lawson noted.
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