


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.
HGGC has experience in insurance services and will continue to evaluate potential opportunities for investment beyond PCF and existing platforms, Davies Group and Integrity Marketing Group, Lawson said.
Davies, a UK-based provider of tech-enabled insurance services to highly regulated industries, made 17 acquisitions and quintupled revenues in three years, according to HGGC. Integrity, a distributor of senior life and health products in the US, has recorded 8x earnings growth since HGGC’s investment in July 2016.
For HGGC, its latest platform deal is consistent with a broader thesis around investing behind companies where CEOs and management teams want to sell but stay involved.
“People don’t want to sell 100 percent of their business in a challenged environment,” Lawson commented.
Consistent with its partnership strategy, Young explained that HGGC approaches each investment differently, versus implementing standard operating principals across each of its companies: “There are a lot of science projects out there,” Young said. “We’re the artists out there.”
Action Item: Read more about HGGC’s playbook amid the covid-19 pandemic