Cooper Gay Swett & Crawford to Sell North American Business

November 13, 2015

Cooper Gay Swett & Crawford (CGSC), the U.K.-based global wholesale, underwriting management and reinsurance broking group, announced today that, following a strategic review of its group businesses, the company will pursue a sale of its North American business unit (CGSC North America).

CGSC has indicated that it will likely use sale proceeds to reduce or eliminate company debt and improve the capital structure, according to ratings agency Standard & Poor’s Ratings Services.

CGSC North America, led by North American operations CEO Tom Ruggieri, consists of the wholesale broker Swett & Crawford, which had merged with Cooper Gay to become Cooper Gay Swett & Crawford in 2010; specialty managing general agencies including J.H. Blades & Co and Creechurch International Underwriters; and a U.S. reinsurance broker.

The divestiture will exclude the Miami hub office for Cooper Gay’s Latin American operation which will remain within the CGSC International business.

Steve Hearn, chief executive officer of CGSC, said: “We believe this transaction will best serve the long-term interest of our clients, employees and shareholders.”

Hearn, former deputy CEO at Willis Group Holdings, recently joined CGSC as its new CEO in November, succeeding Toby Esser, who left the group earlier this year, and Martin Sullivan, CGSC’s non-executive chairman, who’s been serving as interim CEO since Esser’s departure.

The group has engaged advisory and asset management firm Perella Weinberg Partners LP to conduct the divestiture process. The group said no further comment will be made until the process is concluded.

CGSC is an independent global wholesale, reinsurance and specialty lines broking group and managing general agent. The group has a network of 60 offices across the Americas, Europe, Asia and Australasia, employing over 1,500 professionals. The group reported $65 million in EBITDA (operating profit before depreciation, amortization and share based compensation charges, excluding exceptional items) for 2014.

Paying Down Debt

According to S&P, CGSC has indicated that it will likely use the proceeds from the North American unit sale to lower or eliminate corporate debt.

S&P said today that, following CGSC’s announcement, it placed its “B-” long-term corporate credit and debt ratings on CGSC and its related subsidiaries on “CreditWatch” with developing implications. S&P expects to update or resolve the CreditWatch listing within 90 days, when it has more information regarding a possible transaction and its implications.

S&P said in its research note that the CGSC North American business unit comprises a significant component of the company’s overall business. For the first nine months of 2015, the North American division comprised some 60 percent of group revenues and 78 percent of group profits. Accordingly, a potential sale of this division and use of proceeds will have a material impact on the group’s credit profile, S&P said.

The ratings agency also noted that since purchasing Swett & Crawford, the company has experienced steep declines in revenues and earnings primarily from the group’s international division — while the North American business unit has remained relatively steady. S&P said the international segment has been strained from very tough market conditions in many of its markets, including reinsurance and property rate declines, a challenging economic climate in Europe resulting in lower renewals and new business development, and significantly increased competition in Latin America.

“The North American division, Swett & Crawford, was doing pretty well. It was pretty much the international group that had troubles,” said Julie Herman, associate director, Financial Services Ratings at S&P. “And because of that, the company’s capital structure became completely unsustainable. Their leverage was 11 times as of the 12 months ended Sept. 30, 2015. So we knew the management was going to take action.”

‘A Drastic Move’

“Clearly this is a drastic move that the company is taking,” Herman said. “They clearly needed to take action and I think the management team wants to focus their attention on their international operations. I think their viewpoint is that with their leverage profile where it is, it’s very difficult to attract new producers, it’s very difficult to attract new business, it’s difficult to make acquisitions because there is a leverage overhang.”

“I think the company’s point of view is that, they would really be able to focus on international operations, potential new acquisitions and new recruitment if they don’t have that leverage overhang, which they think they could address with this North American sale,” Herman said.

Herman noted that Swett & Crawford has a long, established track record in North America, and it’s one of the largest wholesale brokers independently. “So the management team’s viewpoint is that there is really value here. And in North America, the multiples going for brokers are fairly high. We are seeing multiples in the high single digits to low double digits. We are seeing 8, 9, 10, 11, 12 time multiples,” she said.

On where CGSC could potentially look for a buyer, Herman said she thinks CGSC is open to essentially all different types of buyers. “So it depends on what offers they receive, but I think they are open to strategic buyers and also private equity firms potentially,” she said.

“You see a lot of activity in the private equity space in terms of companies making acquisitions. You also see a lot of activity in the strategic space. Willis Group Holdings just re-entered the wholesale market through Miller Insurance Services, so I think there could be entry from both strategic or from private equity,” Herman said.

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