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K2 Insurance Services Recapitalizes with Lee Equity; Will Spin Off Aegis Security

May 14, 2019

San Diego-based K2 Insurance Services, a specialty insurance services holding company, has found a new equity partner.

Lee Equity Partners, a middle market private equity firm, has agreed to acquire a majority ownership interest in K2.

K2 said that its senior management team, under the leadership of Bob Kimmel, president and CEO, will continue to lead the company and will retain a meaningful equity stake in the business.

Also, as part of the transaction, K2’s specialty insurance carrier, Aegis Security Insurance Co., will be spun off and remain under the ownership of its current equity partner, Endeavour Capital, and Patrick Kilkenny, K2’s chairman who along with Kimmel founded K2 in 2011. K2 acquired Aegis Security Inc. in Harrisburg, Penn. in 2013 for an undisclosed amount. Aegis Security specializes in insurance for manufactured homes, motorcycles, travel trailers, select-value dwellings and other specialty insurance products.

The Lee-K2 transaction is expected to close in the second quarter of 2019. Financial terms of the transaction were not disclosed.

K2 got original backing from Endeavour Capital eight years ago. Last month, K2 confirmed with Insurance Journal that it was looking to recapitalize with a new private equity firm.

“With Lee Equity’s knowledge and experience investing in the insurance industry, we look forward to continuing to build on our proven track record of attracting high quality specialty underwriting teams, acquiring specialty MGAs, and growing organically,” Kimmel said in prepared remarks. “We will do this by offering our MGAs new distribution channels, technology enhancements and access to additional carrier partnerships.”

“We believe K2 will accelerate its already impressive growth trajectory as K2’s specialization, diversification, and its tech-enabled end-to-end operating platform will continue to attract top quality underwriters to join K2,” said Daniel Rodriguez, a partner at Lee Equity.

Before launching K2, Kilkenny ran and owned Arrowhead General Insurance. Kimmel served as executive vice president and MGA practice leader at Guy Carpenter.

K2 owns 14 MGAs that underwrite and distribute specialty property/casualty insurance products. In aggregate, K2’s program managers write more than $650 million of specialty insurance premiums, according to the company.

Over the past decade, New York-based Lee Equity has invested approximately $1.7 billion in more than 20 lower middle market companies and 50 add-on acquisitions. It typically invests from $50 million to $100 million per transaction.

TigerRisk Capital Markets & Advisory is financial advisor to K2 and Evercore is financial advisor to Lee Equity for this transaction.

K2’s first acquisition was in 2012 when it bought a majority stake in Midwestern Insurance Alliance, which specializes in workers’ compensation for transportation risks. Later that year, K2 invested in a new Texas MGA, Mission Select Insurance Services, which focuses on residential property.

More recently, K2 in January announced the acquisition of the assets and operations of Mid-America Risk Managers Inc., an Omaha, Neb.-based farm and agricultural focused specialty general agency that distributes specialty insurance products through independent agents and brokers.

K2 in 2017 acquired Star & Shield Insurance, an affinity distributor of insurance products to members of the public safety community and their families located in Alpharetta, Ga. That same year the company acquired the WaterPlus, FirePlus and JPA in-force expirations from San Francisco, Calif.-based Alteris Insurance Services Inc.

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