Carlyle, HGGC invest $500m in PCF Insurance; plus, a slew of wealth management deals

Good morning dealmakers, thank goodness it’s Friday!

It’s Obey Martin Manayiti here with the newsletter, and as usual, we are capping off the week with a trend that caught my attention recently.

Today we’re rounding up recent deals in the wealth management space, and insights on what’s driving these investments.

I’ll also share highlights of my conversation with Sarah McLean, partner at Shearman & Sterling, who is head of the firm’s private equity practice, about how the energy deal landscape is shaping up against the backdrop of bumper oil profits.

But first, let’s take a look at a big financial services deal announced this morning:
Carlyle’s Global Credit platform and private equity firm HGGC are investing $500 million in PCF Insurance Services, a Lehi, Utah-headquartered company that is ranked among the top 20 insurance brokage firms in the US. HGGC is based in Palo Alto, California, and Carlyle is headquartered in Washington DC.

PCF Insurance is a risk management, benefits design, and insurance brokerage services company serving more than 415,000 clients.

HGGC is an existing minority investor in PCF. Owl Rock, a division of Blue Owl, and Crescent Capital, both of which have existing minority equity stakes in the business, are also participating in the new investment.

The deal values the company at $4.7 billion.

“PCF Insurance Services has experienced tremendous growth as a result of its unique client- and employee-centric operating model,” said Gary Jacovino, managing director for Carlyle Global Credit. “We are delighted to be partnering with an exceptional management team and group of Agency Partners, and are confident PCF will achieve its long-term strategic growth objectives with the support of Carlyle Global Credit, HGGC and our partner investors,” he added.

Wealth management: I’ve noted a flurry of deals in the wealth management space since the beginning of year. It’s an interesting trend, especially at a time when the macroeconomic environment remains tight, wealth managers said. For some firms, the economic turbulence offers an opportunity for growth through acquisitions, while for smaller firms, it’s time to find a bigger and more resourced home that might be in a better position to weather the financial storm.

Here are some of the deals that caught my eye:
Cetera Financial Group, a portfolio company of the San Francisco based-Genstar Capital, made a minority investment in Prosperity Advisors, a wealth management firm headquartered in Kansas City.

Prosperity Advisors’ Paul Ewing described the deal as an opportunity for his firm’s growth. “This expanded partnership with Cetera activates our potential to reach new heights, better serve clients and expand our services in new ways for years to come,” Ewing said.
Denver based-Mercer Advisors, which completed more than a dozen acquisitions last year, acquired Roseville, California-based Empyrion Wealth Management in January.

Empyiron was founded by president Kimberly Foss in 2002. The deal marks the 15th women-owned advisory practice that Mercer Advisors has acquired since 2016. Mercer Advisors is backed by Oak Hill and Genstar.

David Barton, vice chairman of Mercer Advisors, who led the acquisition of Empyrion, said in a press statement: “Kimberly is an exceptional financial planner, speaker, author, a real renaissance woman, and her skill set is highly distinct and valuable. We are proud to add Kimberly’s voice to our team and help share our message of financial freedom across multiple media platforms.”

New York-based Kudu Investment Management made a minority investment in Variant Investments, a Portland, Oregon-based alternative credit manager. Established in 2017, Variant Investments manages more than $2.3 billion, largely for registered investment adviser clients.

In an interview with PE Hub on trends leading to investments in wealth management companies, Kudu chief executive Rob Jakacki said that during times of economic turbulence the best wealth management firms, with an emphasis on planning and client engagement, can enjoy high levels of client retention.

“Well-run businesses are the real gems in the wealth management space,” he said. Jakacki said some smaller wealth management firms may face operational challenges in a tight macroeconomic environment, and that may lead others to seek a bigger, well-resourced home.

In rocky times too, well-run businesses prove themselves to be invaluable to their clients as trusted advisers, Jakacki said, adding that “oftentimes that’s when they enhance their share of wallet with these clients as investment opportunities arise during times of turbulence.”

Power up: Some private equity firms have slowly been shifting away from hydrocarbons for a number of reasons, such as ESG concerns and unstable oil prices. With the tight energy squeeze experienced last year due in part to Russia’s war with Ukraine, the pendulum has swung. Oil producers had a big haul in profits recently. To that end, I spoke to Sarah McLean, partner at Shearman & Sterling during the week to talk about PE trends in the oil and gas sector.

What trends are you seeing in the oil and gas sector so far this year?
In the past, we saw some private equity firms say that they were getting out of the oil and gas sector because it’s too dirty and that it doesn’t support their baseline mission. They had decided to focus their energy spend instead on investments in energy transition. Returns in traditional oil and gas are pretty good and many view natural gas as clean energy, so we still see a lot of private equity supporting oil and gas. From the recent earnings, big oil-producing companies recorded huge returns. Some people are of the view that this will lead to many PE firms joining the oil and gas sector.

What are you seeing on this? Are we going to witness more deals going forward?
The more cash everyone has, the more likely it is that deals are going to get done.
You see more deals getting done when financing isn’t a huge issue. But, from my perspective, deals have started becoming more complicated. There was a time a few years ago when nothing really went on in the market. Now we are seeing deferred purchase prices, not really an earnout but just a deferral. We are also seeing creative financing, the splitting up of assets. There’s lots and lots of ways to move oil and gas assets around that aren’t directly buying and selling them.

In the upstream space, we have started seeing the use of representations and warranties insurance and in some ways, it makes a deal easier while in others, it makes a deal more complicated. Due diligence has become a lot more complex in those cases, too.

In some sectors, valuations have become a big issue because of the current macroeconomic environment. What are you seeing with the oil sector?
It’s a bit different from other sectors for three reasons. First, prices have somewhat stabilized. Second, there’s more capital available, which I think has made the bid/ask spread more stable because there’s more competition for deals. Third, on the private equity side, because of the period from 2018 to early 2021 when we saw very few deals transacting, many fund managers want to sell so they can close out their funds, and management teams want to sell and move on to their next project, so their expectations on price may be different than they were three or four years ago.

Wind Power: My colleague Nina Lindholm in the UK wrote this week on PE Hub Europe that Oslo-headquartered private equity firms FSN Capital Partners and Verdane invested approximately €135 million in Polytech, a global firm providing rotor-blade technical products for wind turbines, in mid-January.

Polytech, headquartered in Bramming, Denmark, has been part of Verdane’s portfolio since 2016, and in early 2021, Verdane established a continuation vehicle, into which Polytech was transferred.

Decarbonization, a trend that the invasion of Ukraine added a geopolitical dimension to, is driving the installation of tons of wind turbines and solar, according to Bjarne Kveim Lie, Verdane’s co-founder and managing partner.

“You need a lot of people to supply all the components and technology you need,” he added. “Polytech is really at a sweet spot there.”

That’s it for me today.

MK Flynn will be back on Monday with an abbreviated President’s Day edition of the Wire.

Have a good weekend.

Cheers,

Obey