Carlyle Group stands to make 2.5x its money with the sale of EPIC Insurance Brokers & Consultants to Oak Hill Capital Partners, a source said.
Oak Hill on July 27 said it agreed to buy all of Carlyle’s holding in Epic. The enterprise value of the deal was $977 million, a statement said. The transaction is expected to close in the third quarter. EPIC’s management is staying, said Pete Garvey, president.
Founded in 2007, EPIC, of San Francisco, is a retail property, casualty insurance brokerage and employee benefits consultant with annual revenue nearing $300 million. Carlyle acquired a controlling stake in Edgewood Partners Insurance Center Inc in December 2013. At that time, EPIC had about $80 million in annual revenue. The broker employs about 1,200, up from about 300 in 2013.
Two Carlyle funds invest
The investment came from two funds, Carlyle Global Financial Services Partners LP and Carlyle Global Financial Services Partners II LP. Carlyle will make about 2.5x its investment with the sale, while the transaction represents a roughly 30 percent IRR on the two Carlyle FIG funds, the person said.
With the deal, Oak Hill will become the third PE owner of EPIC. Carlyle in 2013 bought its majority stake in EPIC from Stone Point Capital, one of EPIC’s original backers. Last year, Stone Point sold its remaining stake in EPIC to Carlyle and company employees, Garvey said.
Selling to another PE firm, as opposed to a large insurance broker, will enable EPIC’s management to continue building a “solid insurance brokerage for the long term,” Garvey said.
“We have a strong preference for remaining independent,” he said. “You’ve got to get your capital from somewhere. What does it matter if it’s from private equity or the public market or a family office or a pension fund? This allows us to be a freestanding business.”
Insurance brokers typically produce steady cash flows, which has attracted PE to the sector. EPIC competes against other PE-backed brokers including Alliant Insurance Services, a Stone Point portfolio company; HUB International, which is owned by Hellman & Friedman, and USI Insurance Services, which was sold to KKR and Canadian pension fund manager Caisse de dépôt et placement du Québec for $4.3 billion earlier this year.
EPIC is not a serial acquirer, Garvey said. “We are not focused on deals,” he said. “If a deal makes sense we’ll do it. If not, we won’t.”
Instead, EPIC’s model is to build a “best in class” platform that attracts accomplished insurance brokers, who bring their client relationships with them. EPIC augments this with acquisitions, Garvey said. “We have an organic growth rate that is substantially above industry average,” he said.
A narrow process
Bank of America Merrill Lynch and SunTrust Robinson Humphrey launched a narrow process for EPIC in late spring, Garvey said. EPIC and its advisers reached out to specific PE sponsors, he said. “We’ve known Oak Hill for a long time,” Garvey said.
Last week, Oak Hill closed its fourth private equity fund at $2.65 billion. Oak Hill Capital Partners IV will invest between $100 million and $300 million in middle-market companies mostly in North America. The Menlo Park, California, PE firm targets sectors such as consumer, retail and distribution, industrials, and services.
Oak Hill could not immediately be reached for comment.
Rob Giammarco and Brad Kleinsteuber of BAML along with Bill Nay of SunTrust provided financial advice to EPIC. Wachtell, Lipton, Rosen & Katz served as EPIC’s legal adviser.
Barclays was financial adviser to Oak Hill. Christopher Machera and Doug Warner of Weil, Gotshal & Manges served as Oak Hill’s legal adviser.
Action Item: Call EPIC’s Pete Garvey at +1 646-452-4031
Photo courtesy monkeybusinessimages/iStock/Getty Images