All posts by Kastle Olson

18Nov/14

Dominium Becomes National Employee Benefit Consulting Practice For Global Risk Management Firm Integro

New York, NY & Atlanta, GA (November 10, 2014) – Integro Ltd., one of the world’s largest and fastest growing privately held insurance brokerage and risk management firms, has acquired Atlanta-based Dominium to lead its national employee benefit consulting practice. Joining Integro positions Dominium for rapid growth and complements Integro’s Property and Casualty success in the large complex risk market. The Dominium management team, led by CEO Scott Schanen and COO Jimmy Mills, will guide this large complex risk practice and will play a key role in formulating future growth plans for the combined companies.

“The employee benefits sector is crucial to our suite of corporate solutions, especially as we look to further enhance and leverage Integro’s leadership position in the management of risk. The combined knowledge and expertise of Dominium and Integro will ensure we deliver unique and sustainable solutions to managing the burgeoning cost of health care,” said William Goldstein, President of Integro. “The strategic approach, technical abilities and proven record of success of Dominium are a perfect fit with Integro’s vision and plans for future growth.”

Schanen and Mills will remain in their respective leadership positions, reporting directly to Goldstein. Each will also serve on Integro Ltd.’s Operations committee. According to Schanen, “Combining the Integro and Dominium brand further differentiates our employee benefits practice and facilitates the development of innovative strategies to rethink the management of healthcare, pharmacy, disability and workers’ compensation programs.”

Dominium was launched in 2007 under the belief that innovation in employee health and well-being programs can help companies maximize the power of their own performance. “Becoming part of the Integro organization enables us to leverage the resources and expertise of a large international firm while providing the client focused service of a boutique benefits consultancy; we continuously punch above our weight,” notes Mills. “Our combined expertise and talent will bring innovation and profit-oriented outcomes to the clients we serve.”

Dominium will maintain its successful brand and remain headquartered in Atlanta where it will support branch office growth into other major U.S. markets.

Source: Integro

28Jul/14

Is Private Equity Losing its Taste for Risk?

RiskimgPrivate Equity managers aren’t paid to be patient, they are paid to put money to work and they’ve never had more of it. With over $1 trillion of committed capital coming into 2014, you would think that risk taking would accelerate, but several factors seem to be pushing the industry in a surprising direction; away from risk.

Surplus Capital is driving valuations higher and returns lower

Valuations are approaching record levels for the first time since 2007 and rumor has it that projected equity returns are in the “mid-teens” for large, leveraged buyouts. This means that the average equity investment is projected to return 2 times their principal in 5 years (before any losses or expenses). That’s better than public equity returns but leaves little room for error.

Debt markets are frothy again

Valuations are being levitated by the abundance of debt financing available. Leverage multiples are now exceeding 5X ebitda, on average. This is ok if interest rates stay at historic lows but it can lead to intoxicating overconfidence on a dealmaker’s perceived risk profile. One General Partner at a major fund told us that he was fine going over 5X leverage on a $1 billion buyout. He paid more than 10X ebitda and hence the deal was “under 50% debt to total capitalization”. That seems like cold comfort since a higher level of debt heightens the risk to both the debt and equity holders, regardless of valuation.

RiskSubtitle

The cost of an investment mistake grows exponentially

Higher valuations and leverage magnify the impact of small changes in a deal, such as higher capital spending, loss of a customer, a rise in interest rates or multiple contraction upon exit. One or a combination of small changes in each of these can quickly crush the equity in a deal.

A single busted deal can put the “next fund” and its fees in jeopardy

If successful deals are projected to return about 15%, you can’t afford a hiccup. A loss on one or two deals in a portfolio can quickly bring the average return down close to or below the fund’s hurdle rate (generally 6-8%) and decimate the value of the GP’s carried interest. At current valuations, the likelihood of a large return from one deal (eg. 5X to 10X) to offset losses in the portfolio is greatly diminished. General Partners in large funds often make more in management fees than they do in carry. Hence, they are forced into “playing defense” in a low return environment; protecting that stream of management fees can become a dominant factor in deal selection, pricing and management.

All of these factors dampen a Company’s risk appetite

Historically, private companies were able to operate outside the spotlight of the public market and act more aggressively to pounce on opportunities. At today’s valuation and structures, the cost of increased R&D, acquisitions or expanding a sales force can become much more risky to fund. Large leveraged buyouts at high valuations can actually make management more risk averse. When banks have a say in funding these unexpected “opportunities”, covenant changes can be costly.

What does this mean for Entrepreneurs? Higher valuations and more choices sound like good news for Entrepreneurs but they need to do more careful homework on potential partners. Here’s what they need to know:

Funds will gravitate toward larger, more stable businesses with less risk but less upside where they can put more money to work. The private equity industry is now dominated by larger funds that prefer to “pay up for quality”. This implies investing at a higher valuation in a larger, more established business with steadier cash flows. This results in a lower, but more reliable investment return with less risk of loss. Higher risk deals for more volatile companies may need bigger discounts in valuation or have a harder time getting done.

Private Equity firms may become more bureaucratic

Success in Private Equity seems to result in bigger and bigger funds. The industry has grown over 1000% in the last 20 years and fund sizes have multiplied. Cultural change is inevitable when companies employ hundreds (instead of tens) of people. While Private Equity continues to attract the “best and brightest” people, they have added more layers and, hence, more uncertainty and complexity in their investment process. Larger organizations tend to be less entrepreneurial and slower moving. They tend to become more inward-focused; towards organizational survival, and less flexible for entrepreneurial CEO’s.

Private Equity could start to look more like the high yield debt market

The “debtification” of the private equity market represents a shift of emphasis towards return of capital rather than multiplication of capital. As Private Equity returns converge with high yield debt, they will favor terms that mitigate and shift risk to the Entrepreneur and founding shareholders who may get less value from a capital partner who is not as aligned with their interests.

Smaller funds will be more effective in the lower middle market

Large Cap funds will be replaced in the lower middle market by smaller funds, spinoffs and independent sponsors, who will be more eager to pursue investments under $10-20 million and allocate time and energy towards their success. Entrepreneurs will be better off avoiding large, “brand name” funds and focus on smaller funds that can give Entrepreneurs what they need most; attention from senior partners.

Cheap capital may not always be a good thing for Entrepreneurs

Lower returns can be indicative of a more efficient capital market which lowers costs and benefits everyone. However, it should also expand companies’ financing options, improve transparency and lower transaction costs which does not seem to be happening. Financing options for Entrepreneurs will become more perilous as funds chase returns lower but structure more onerous downside protection- something akin to offering “teaser rates” to borrowers. You may have to read the fine print to know what you’ve really got in a deal.

Potential Value of Management Options will Decrease

In deals of equal size, management options will be worth 63% less over five years at a 15% IRR versus a 30% IRR. Hence, management may need more equity or become more focused on current cash compensation and less on long term capital gains.

Bottom Line

As Private Equity evolves into a large, institutionalized asset management industry, its success seems to be causing a shift away from its original constituency; smaller, privately-owned businesses that need support and guidance to achieve the next level of success. The economics of larger fund sizes and deals and, hence, fee income to GP’s are just too compelling to ignore. When funds chase bigger deals at reduced IRR’s, they become focused on return of principal, less able and willing to pursue riskier growth strategies and, structurally, more dependent on management fee income vs. carry as a percent of the overall professionals’ compensation. The additional layers of people needed to manage the larger infrastructure can also dilute the talent and attention to the portfolio companies.

Entrepreneurs have a bigger selection of potential partners than ever but a far more complex selection process. Smaller investment firms with a highly engaged senior team who get most of their compensation from capital gains may be harder to find but offer a significantly stronger value proposition as capital partners.

15Jun/14

Integro Insurance acquires California-based employee benefits broker

Integro Ltd. on Thursday announced that it has acquired the Newport Beach, California-based employee benefits broker and consultant Lugo & Associates Insurance Services Inc.

Terms of the sale were not disclosed.

“Lugo & Associates focuses on group health and 401(k) and pension plan clients in the small to medium size markets, a great complement to Integro’s larger company client base,” Integro North America’s San Francisco-based president, Marc Kunney, said in a statement released Thursday. “With his vast experience in this market, Mike (Lugo) will lead the small to mid-size group division serving clients with fewer than 250 employees.”

Lugo & Associates will be rebranded as a unit of Integro, and continue operating from its offices in Newport Beach.

Source: Business Insurance

15May/14

Integro Announces New Management Team

May 6, 2014 – Integro Ltd., a leading risk management and insurance broking company, announced today that John Clements has been appointed Chairman of the Board of Directors and Rocco J. Nittoli has been appointed Vice Chairman of the Board. The Company also announced the formation of an Executive Committee, consisting of Marc Kunney (President, North America Operations), John Sutton (President, International Operations), William Goldstein (President and Chief Operating Officer), Toby Humphreys (Chairman of Integro Insurance Brokers Limited) and William P. Costantini (Managing Principal & General Counsel), to assume management responsibilities, including those of Peter Garvey, who has left the Company. The Company wishes Mr. Garvey well in his future endeavors.

“We are pleased to have elevated a team of proven Integro executives to lead the Company’s continued organic and acquisitive growth,” said Mr. Clements. “We are confident that this team possesses the experience, enthusiasm and vision to propel Integro to the next level, providing quality insurance broking and risk-management services to our expanding roster of top-notch commercial and private clients across a wide range of industries and businesses.”

___

Founded in 2005, Integro is headquartered in New York City and has offices in Atlanta, Bermuda, Boston, Chicago, London, Montreal, Nashville, San Francisco, Toronto and Vancouver.

 

Source: Integro

01May/14

Finalists announced for Arizona Deal of the Year

The Association for Corporate Growth-Arizona Chapter has announced the finalists for its prestigious “Deal of the Year” Award, which will be presented at the organization’s Southwest Mergers & Acquisitions Conference on May 14-15.

The three finalists are:

— The merger of E.B. Lane and Terralever into LaneTerralever, which was nominated by JDB Capital Partners, LLC.

— Recapitalization of QK, Inc. by Cave Creek Capital, Stewart Capital and Seacoast Capital, nominated by Greene Holcomb Fisher.

— Sale of Pinto Valley Copper mining and milling operations and related railroad company, nominated by Polsinelli.

The Southwest Mergers & Acquisitions Conference will conclude with the presentation of the ACG-Arizona 2014 Deal of the Year Award, a coveted honor given annually to a company or private equity firm in recognition of their accomplishments in Arizona’s mergers and acquisitions or capital markets marketplace. The award will recognize a deal/transaction in the Arizona marketplace involving established businesses with between $10 and $750 million of revenue that closed in the 2013 calendar year.

Additionally, the conference program will include exceptional speakers and content for the business community, including:

— Breakfast Keynote with Jim Huntinger of BOK Financial

— Breakfast Keynote with Anthony LeBlanc of the Phoenix Coyotes

— CEO Panel Discussion in Morning Breakout Session

— Lunch Keynote with Douglas Holtz-Eakin, economic policy expert

— Afternoon breakout sessions featuring Private Equity and Credit Market updates

“We are pleased to be able to recognize these three exceptional transactions which have had a positive effect on Arizona’s economy,” said Sanat Patel, President of the ACG-Arizona Chapter Board of Directors. “These are perfect examples of how middle-market transactions are helping create economic growth and job development in our state and the country as a whole.”

Endeavour Capital’s purchase of Arizona Nutritional Supplements was recognized as the 2013 Deal of the Year last year.

The conference will be held at the Fairmont Scottsdale Princess Resort, where a room block for attendees is available. Registration is $310
for ACG members who sign up in advance and $410 for non-members. At-the-door registration is $365 for members and $465 for non-members.

The conference will kick off on May 14 at 1 p.m. with a Golf Event at the Tournament Players Club of Scottsdale. The golf event is open to all registrants for the conference and is $195.

Conference sessions will take place on May 15, and will begin with an 8 a.m. breakfast featuring Huntzinger and LeBlanc as breakfast keynote speakers. After the morning CEO panel, lunch will be served and the Keynote Luncheon Speaker will be Holtz-Eakin.

A distinguished policy advisor, academic, and strategist, Dr. Doug Holtz-Eakin is skilled at forecasting policy changes on the horizon and recommending sound strategies for mitigating risk to your industry. He has served at the highest levels of government concerned with economics and is well-known on Capitol Hill and in Washington’s top think tanks. Having been involved in policy, politics, campaigns, and elections, he addresses economics from all points of view with his well-rounded expertise.

For more information or to register for the conference, visit www.acg.org/arizona, e-mail the chapter atacgarizona@acg.org, or call 602.448.3981.

Source: azbigmedia.com

Transparent Capitalism


Why Independent Sponsors Can Be A Better Way To Invest in Private Equity

Transparent CapitalismimgIndependent Sponsors are rapidly penetrating the Private Equity market and are now involved in nearly half of all middle market transactions.  These groups invest in each deal individually,rather than through ten year committed funds (affectionately known as “blind pools”).  As this trend accelerates, it is also helping high net worth investors (“Investors” with >$1MM of investable assets) access and fund deals where they can earn better returns with more control over deal selection, less risk of delayed liquidity, fewer fees and more transparency.  These are not high flying, venture capital “club deals” with lottery style risk and return; these are generally established, profitable middle market companies which are managed through trusted relationships, distribute current income and provide investors with timely access to a company’s detailed information.  This “Transparent Capitalism” is yielding enormous advantages for Investors; they can make their own decision about each deal and pick the ones which coincide with their interests and values and which are better timed and sized to their liquidity. Deal quality is self policing as each investment must stand on its own merits and Independent Sponsors are under no required timetable to invest uncommitted funds.

Independent Sponsors are not tied to a single funding source and can select Investors who offer more than just money.  The best ones often focus their fundraising efforts on Investors who can add value through their expertise, background and relationships. Investors can be more than passive bystanders; they can serve as consultants, board members or just interested parties on the lookout for new customers or key hires.  Their questions, insights and involvement can actually aid in the due diligence process and improve investment outcomes over time.  They are the opposite of “dumb money”.  In Transparent Capitalism, Investors become engaged, informed and focused on a smaller number of deals rather than participants in widely diversified, passive investment portfolios managed or selected by third parties.  Transparent Capitalism also enables a virtuous cycle.  Investors can use these networks to share in deal referrals with other like-minded groups to gain access to a larger number of higher quality transactions than they could otherwise find and invest in individually.

TransparentCapitalismSubtitle

Investors in the public markets face a sobering prospect of lower returns as interest rates have plummeted, earnings growth has slowed and stock performance has declined over the last decade.  They would gladly trade some short term liquidity in return for access to Private Equity opportunities yielding double digit annual returns, but most Investors have little ability to indentify or underwrite these investments on their own.  The majority of large Private Equity funds (often sold to individuals through brokers with a high fee structure) require a 10+ year commitment before you even know the identity, valuation, timing and structure of the investments.  Furthermore, the surplus of capital in the large buyout market has depressed the returns of these large funds which, on average have underperformed the returns of the lower middle market funds.  Hence, the growth of Independent Sponsor networks is creating a much needed realignment of investment opportunities by combining an Investor’s capital with his or her expertise and network of relationships.

Investors historically invested the large majority of their assets in the stock and bond markets and only a small percentage of their assets (“fun money”) went to private deals that were perceived as high risk but high reward for those that worked out well.  However, these deals often created adverse selection risk by focusing on earlier stage investments (or, my favorite, speculative real estate).  Generally, the further away from the Sponsor’s personal network or industry they went to seek funding, the more likely the deal’s risk/return characteristics were mismatched or exorbitantly favored the insiders.  Independent Sponsors in established, profitable middle market companies, putting their personal capital to work alongside Investors, mitigate the risk of adverse selection and provide an important investment discipline.

The advent of Transparent Capitalism is turning traditional investing upside down.  Investors can take matters in their own hands and invest a much larger portion of their assets in fewer companies where they can leverage their industry knowledge and relationships.  Capital has become cheap and oversupplied in most capital markets and Investors have come to accept capital preservation as a more modest and realistic goal for their institutionally managed money.  Investors are realizing that their future wealth will be created by their own business or from private investments coming out of their own network.  Independent Sponsors enable Investors to pick their own deals within a trusted network and favor investment structures that mitigate risk.  Investors sacrifice liquidity but gain access and influence with their Sponsor or Management team.  These investments often yield current income, improving liquidity and providing Investors with some financial cushion in a distressed economic environment.

Individual investing in private companies is not a new concept.  The Independent Sponsor model in Private Equity is just another step in the ongoing financial disintermediation of personal investments from the institutional model; improving transparency and efficiency and leveraging the growth in information technology, a form of social networking with financial objectives.  Transparent Capitalism mimics the benefits of the merchant banking model of the 1800’s by ensuring that investors’ interests are closely aligned (ie. Everyone is writing a check and has money at risk).  The model takes advantage of trusted networks that need to maintain each party’s reputational status.  By pooling talent and capital, Investors’ ongoing business relationships and investment results are strengthened, generating transcendent franchise/network value.  Importantly, Transparent Capitalism can function as an evergreen source of investment opportunities and funding for the Investor network, with proper incentives for all parties’ active involvement towards a successful investment result.

13Nov/13

Integro Canada Acquires Winnipeg’s Multimedia Risk Inc.

November 5, 2013 – Integro (Canada) Ltd. today announced its acquisition of Winnipeg-based Multimedia Risk Inc., a leading specialized insurance brokerage serving the national and international film and television production industry from offices in Canada and the United States.

Financial considerations were not disclosed.

Established in 1998, Multimedia Risk has brokered coverage for hundreds of film productions, including “The Expendables,” “The Mechanic,” “Midnight’s Children” and “Getaway” as well as television productions, ranging from “Heartland” and “Cracked” to “Corner Gas,” “Little Mosque on the Prairie,” “Cashing In” and “Todd and the Book of Pure Evil.”

“Multimedia Risk adds to our geographic presence and enhances our expertise in entertainment,” noted Mark Rankin, president of Integro Canada. “With Integro offices in Montreal, Toronto and Vancouver, Multimedia gives us a physical presence in a fourth Canadian city and province, Winnipeg, Manitoba, and its diversified, flourishing economy. We are excited to welcome Claude Forest and his accomplished team, and to leverage their success across the Integro organization.”

Forest, who founded and leads Multimedia Risk, said, “We are proud of what we’ve accomplished over the past 15 years and excited at the prospect of helping Integro assume a leadership role on the international entertainment risk management stage.”

Multimedia Risk is the latest of several international entertainment sector acquisitions by Integro Canada’s parent company – New York-based Integro Insurance Brokers — in recent years:

  • Doodson Broking Group, a UK-based entertainment and sports specialist (October 2013);
  • Allan Chapman & James, leading UK-based media insurance broker (August 2012);
  • Frost Specialty, Nashville, TN-based entertainment specialist (August 2010).

About Multimedia Risk Inc.

Since 1998, Multimedia Risk has provided insurance-related services to the national and international film and television industries — covering the spectrum from micro budget to blockbuster productions. Multimedia Risk understands the complexities of motion picture and television production in all its forms, and tailors comprehensive, cost effective solutions delivered on time from offices in Canada and the United States.

About Integro (Canada) Ltd.

Established in 2005, Integro Canada provides commercial clients, from coast to coast, with solutions to complex risk challenges from its offices in Montreal, Toronto and Vancouver. The firm offers a broad array of brokerage services with specialties in Mining, Manufacturing, Construction, Marine, Real Estate and Recreational. Integro Canada is a division of Integro Insurance Brokers, an international insurance brokerage and risk management firm based in New York.

About Integro

Integro is an insurance brokerage and risk management firm focused primarily on serving organizations with complex risks. Clients credit Integro’s superior technical abilities and creative, collaborative work style for securing superior program results and pricing. The firm’s acknowledged capabilities in brokerage, risk analytics and claims are rewriting industry standards for service and quality. Launched in 2005, Integro and its family of specialty insurance and reinsurance companies, some having served clients for more than 100 years, operate from offices in the United States, Canada, Bermuda and London.

Source: Mediacaster

28Oct/13

Integro Acquires UK-Based Broker Doodson

October 22, 2013 – International insurance brokerage and risk management firm Integro announced it has acquired Doodson Broking Group, a UK-based entertainment and sports specialist that also provides full service commercial and private client broking services.

Doodson was established in 1964 in Manchester. It also has UK offices in London and Halifax, and Austin, Texas in the US. Integro’s bulletin notes that it has “has achieved significant success with clients in the entertainment, live event and sports sectors in the UK and US, and also large corporate entities and high net worth private clients in the UK.”

Integro President and CEO Peter Garvey said: “Joining forces with Doodson enhances our reach and existing strengths in sports and entertainment, as well as our presence in UK retail broking.” With the addition of Doodson as well as the firm’s strong organic growth, Garvey noted, Integro’s annualized revenue surpasses $150 million.

“Strategically Doodson, along with earlier acquisitions Frost Specialty, a significant presence in entertainment coverage in the United States; and Allan, Chapman & James, a leading film and media insurance broker in the United Kingdom, solidifies Integro as a leader in entertainment and live event risk,” Garvey said.”

Integro said the “current Doodson management team, led by Neil Clayton with the support of James Dodds and David Leech in the UK, and Roger Sandau in the US, will remain in place.”

Managing Director Clayton said: “Partnering with Integro is great for Doodson clients and staff. The combined forces of the group will give us a great platform to continue to grow the business in the UK and internationally, especially in our key sectors. Integro has a culture and ethos completely aligned with Doodson’s, further strengthening the strategic fit.”

Source: Integro

Cave Creek Capital Closes Investment in Air Waves LLC

October 24, 2016

Cave Creek Capital (“CCCM”) is pleased to announce its investment in Air Waves LLC (“Air Waves”), a leading provider of on demand garment printing and fulfillment services. Air Waves services several major online retailers, including Amazon, Zulily and Walmart.com by offering thousands of creative, high quality apparel products with rapid turnaround time and “mass customization” capabilities unmatched by competitors. As apparel sales move online, Air Waves is uniquely positioned to offer products and services that enable E-tailers to improve their quality, selection and turnaround time for end customers.

CCCM’s recapitalization funded a repurchase of shares from Management, in conjunction with a strong team of investment partners, including Stewart Capital, C3 Capital, and Northwood Ventures. “We are looking forward to expanding our business with the help of our new partners.” said Kyle Kantner, CEO of Air Waves.  “Our new partners can provide the financial resources and strategic and operational assistance we need to continue our 30% annual growth” states Dan Kaiser, Air Waves CFO.

Cave Creek Capital has an extensive track record of successful investments where Founders can gain person