by B.P. Marsh | Sep 16, 2019 | Portfolio News
B.P. Marsh & Partners Plc the specialist investor in early stage financial services businesses, is pleased to announce that XPT Group LLC (“XPT”), the U.S. based specialty lines insurance distribution company, has successfully completed a fund-raising exercise and complementary acquisition.
Fundraising
XPT has secured $40million in aggregate financing from Madison Capital Funding LLC (“Madison”).
Madison, founded in 2001, is a market leader in providing middle market companies with debt solutions. Since inception Madison has invested $34.4billion in 1,193 transactions with 305 different private equity sponsors. Madison is a leader in financing the insurance distribution segment.
As part of the transaction, Madison will take an equity interest in the business which values XPT at an enterprise valuation of circa $54m.
The financing provides XPT with an opportunity to make further acquisitions and enter the next phase of its growth. Upon completion with Madison, XPT will draw down $18m. This draw down will be to finance the acquisition detailed below and to repay an existing debt facility.
A further $22m finance facility is in place to support growth.
Acquisition
Simultaneously to the completion of the fundraising, XPT have acquired 100% of Sierra Specialty Insurance Services Inc. (“Sierra”). Sierra is an MGA and wholesale broker based in Fresno, California, and specialises in the provision of insurance to independent retail agents.
Sierra is led by President, Kathy Schroeder together with COO, Mark Schroeder. Both Mark and Kathy Schroeder have many decades of experience in underwriting, broking and management. Kathy has also served on the American Association of Managing General Agents Board, one of the two predecessors to Wholesale Specialty Insurance Association (WSIA). Both Kathy and Mark Schroeder will remain at Sierra post acquisition.
Following the investment by Madison in XPT and the acquisition of Sierra by XPT, B. P. Marsh will have a revised shareholding of 32.2% in XPT.
XPT continues to explore additional M&A opportunities in the U.S. that complement and enhance XPT’s product and distribution offering.
XPT’s Chief Executive Officer Thomas Ruggieri has stated that “XPT is fortunate to have quickly assembled a Partnership nucleus of expert specialists in Specialty Distribution financially backed by the two most experienced financers supporting Insurance Distribution in BP Marsh and Madison Capital Funding. We look forward to continuing our industry leading organic growth by supporting our partners with new product, resources and customer service to attract the brightest client focused producers to our partnership.” He also noted “Kathy and Mark’s leadership in the industry and in central California will greatly enhance our partnership. Sierra Specialty reinforces XPT’s collaboration as they will partner in our existing product segments in general authority underwriting, transportation and hospitality, while moving us into agri-business.
Commenting on the recent activity, the Group’s Chief Investment Officer and Nominee Director on XPT, Daniel Topping, said “The fundraising with Madison is a tremendous milestone in XPT’s development. Since XPT’s first investment in November 2017, XPT has grown to Gross Written Premium approaching $200m, inclusive of the Sierra acquisition. This is an outstanding achievement by the XPT team and we look forward to further supporting their growth.”
by B.P. Marsh | Sep 2, 2019 | Portfolio News
B.P. Marsh, the specialist investor in early stage financial services businesses, provides the market with an update on trading for the six months ended 31 July 2019.
B.P. Marsh had anticipated that it would make this Trading Update on 5 September 2019. However, in light of the Group’s recent share price performance and the announcement made regarding LEBC Holdings Limited the Group believed it was sensible and prudent to bring this trading update forward, to update shareholders on the performance of the Company as a whole and to provide further information regarding LEBC.
LEBC Holdings Limited (“LEBC”)
The Group notes its recent announcement regarding its investee company LEBC Holdings Limited, in
which it holds a 59.3% shareholding. LEBC Holdings Limited is the parent company of LEBC Group
Limited (“LEBC”) the UK IFA business.
As part of its market-wide review of the defined benefit (“DB”) transfer market, the FCA has undertaken
a review of LEBC focused on the division of the business that provides DB pension transfer advice.
Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and
projects, forthwith.
Advice in the DB transfer market represents c.20% of LEBC’s total revenue in the current year. The
cessation of the provision of advice in this area will have an impact on LEBC. However, LEBC,
excluding DB transfer business, is expecting to produce annual revenue of c. £19m with the business
still reporting an acceptable underlying profit position.
In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as
it evolves its business, which provides a range of financial solutions, for the benefit of its customers,
staff and shareholders. As reported this morning, LEBC is working on a number of initiatives, some of
which have already been implemented. The Group will work closely with LEBC’s management team
to return LEBC to the position it was in before the FCA review.
Although the current situation will reduce LEBC’s valuation in the short term, B.P. Marsh has a diverse portfolio. The strong performance delivered by a number of its investee companies in recent months, as outlined below, means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019. As at the last published valuation (being 31 January 2019, released on 11 June 2019), the Group valued its 59.3% stake in LEBC at £35.5m.
Net Asset Value and Interim Results
The latest published Net Asset Value (“NAV”) is £126.2m, or 350p per share, as at 31 January 2019.
The NAV per share is calculated based upon the total shares in issue of 37,478,077, and then excluding
1,461,302 shares held in a management incentive scheme as these shares are subject to performance
criteria which have not yet been met and are non-dilutive at this time.
Although the current situation will reduce LEBC’s valuation in the short term, B.P. Marsh has a diverse
portfolio and the strong performance delivered by a number of its investee companies in recent months
means that the Board believes that the Company will emerge in a satisfactory position under the
circumstances as regards its financial results for the six months ended 31 July 2019.
The interim results to 31 July 2019 and the updated NAV will be announced on Tuesday 15 October
2019.
Cash Balance
At 31 July 2019 the Group’s cash balance was £1.4m. In light of this, the Board explored short, medium
and long term funding options to improve the cash balances of the Company, in order to take advantage
of any new investment opportunities.
Having reviewed all the options available to the Group, and given the market wide volatility, the Group
entered into a £3m loan facility, provided by Brian Marsh Enterprises Limited, a company in which the
Chairman, Brian Marsh, is a director and sole shareholder.
The loan facility provides the Group with further investment cash at an interest rate of the higher of 4%
or the UK 1-month LIBOR plus 3.25% and is available to be drawn down until July 2020.
The Board considers that these are commercially advantageous terms, compared to other avenues of
funding available.
Follow-on Investments and Funding
Nexus Underwriting Management Ltd (“Nexus”)
| In April 2019 the Group provided Nexus with a £2m revolving credit facility, as part of Nexus’ wider debt fundraising exercise in order to undertake M&A activity. In addition to the facility from the Company, Nexus has secured an additional £14m loan facility from funds managed by HPS Investment Partners, LLC (“HPS”). HPS is a leading global investment firm. The funding provided by both B.P. Marsh and HPS resulted in Nexus securing a total of £16m in new loan facilities, in addition to the £30m of loan funding secured from both B.P. Marsh and HPS in July 2017. Nexus has continued with its acquisition strategy during the period. Most recently, on 30 July 2019 Nexus acquired Plus Risk Limited (“PRL”), a London based Financial and Professional Lines MGA. PRL provides Management Liability and niche Professional Indemnity Insurance. PRL was founded in 2017 and its underwriting team is comprised of James Rasmussen and Neil Ede, who will continue in the business post transaction. James Rasmussen and Neil Ede will become shareholders in Nexus. In April of this year Nexus acquired Credit & Business Finance Limited (“CBF”), a specialist trade credit broker, and Capital Risks MGA Limited (“Capital Risks”), a Warranty and Indemnity MGA. The management shareholders of CBF and Capital Risks became shareholders in Nexus as part of the acquisitions. |
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| Following the acquisition of CBF, Nexus is now the leading independent UK trade credit broker, fulfilling one of its strategic goals and uniting the two biggest producers of ‘new to market’ business, and will hold a market share in excess of 10% of the estimated £350m Gross Written Premium for the UK trade credit broking market. Nexus are forecasting an adjusted EBITDA of c.£20m over the next 12 months, which would represent an increase in EBITDA of 45% compound per annum since B.P. Marsh’s investment in August 2014. |
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Portfolio Update
UK
CBC UK Ltd (“CBC”) CBC, the London based Lloyd’s broking business, continues to demonstrate strong growth. EBITDA increased by 40% in 2018, and is on target for increasing at the same rate in 2019. CBC continue to strengthen its product offering with strategic hires, and have recently hired an experienced Financial Products team. |
EC3 Brokers Limited (“EC3”)
In December 2017, the Group invested in EC3, an independent specialist Lloyd’s broker and
reinsurance broker.
Since investment, EC3 has grown its top line revenue from c. £9m to a budget of approaching £14m in
the year to 30 December 2019, whilst also maintaining a good underlying profit margin.
Over the same period, B.P. Marsh has worked with EC3 to augment its management function, and
further develop its product offering to deliver top and bottom-line growth.
The Fiducia MGA Company Limited
In November 2016, the Group invested in a UK Marine Cargo Underwriting Agency, established by
CEO Gerry Sheehy and based in Leeds.
Fiducia is a registered Lloyd’s Coverholder which specialises in the provision of insurance solutions
across a number of Marine risks including, Cargo, Transit Liability, Engineering and Terrorism
Insurance
Since Fiducia commenced trading, it has grown from a start-up position to producing in excess of £10m
in Gross Written Premium in the year ending 31 December 2019, across its specialist lines of business.
Walsingham Motor Insurance Ltd (“Walsingham”)
Walsingham, the London-based motor fleet MGA, continued its strong progress in 2018 reporting
£19.8m in premium and generating EBITDA for the year of £0.6m. 2019 has seen further strong growth,
reporting £21.5m in premium in 10 months’ trading and EBITDA expected to be significantly ahead of
2018.
Canada
Stewart Specialty Risk Underwriting Ltd (“SSRU”)
SSRU, the Toronto based provider of specialty insurance products to a wide array of clients in the
Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, commenced
operations in February 2017.
Since the Group’s investment, SSRU has increased its Gross Written Premium from nil to a forecasted
position of over CA$9m, in the year ending 31 December 2019, whilst also producing profit and
dividend yield.
Spain
Summa Insurance Brokerage, S. L. (“Summa”)
Summa is a regional consolidator of insurance brokers in Spain, with 19 branches across Spain.
USA
XPT Group LLC (“XPT”)
Whilst the Spanish insurance market continues to be a challenging place in which to operate, Summa
continues to deliver c. €45m of annual premium and an annual adjusted EBITDA of over €1.2m.
The Group was also pleased to note that Summa had achieved Lloyd’s coverholder status, which will
bolster its product offering going forward.
The Group invested into XPT in June 2017, the U.S. based specialty lines insurance distribution
company.
In July 2019, XPT’ acquired Klein & Costa Insurance Services (“Klein & Costa”), an MGA and surplus
lines broker located in Santa Ana, California.
Established in 2001, Klein & Costa provides broking services in the areas of Professional Liability and
Speciality Lines, and as an MGA it represents three carriers with broad delegated underwriting
authority.
Following the acquisition, Klein & Costa became part of WSSIB, XPT’s wholesaler and MGA based
in Texas and California, and began trading under the WSSIB name and provided WSSIB with entry
into a new location and introductions to Klein & Costa’s retail producers.
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Since XPT commenced trading, it has grown from start-up to $165m in Gross Written Premium and is
approaching $3.9m of adjusted EBITDA in the current financial year ending 31 December 2019.
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XPT continues to have an active pipeline of new investment opportunities and is in advanced
discussions with a further significant value accretive acquisition opportunity.
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Australia
B.P. Marsh’s existing investments in Australia [ATC Insurance Solutions PTY Limited, Sterling
Insurance PTY Limited and, MB Prestige Holdings PTY Limited] continue to perform well in an
insurance market which although challenging from a performance perspective, has presented these
companies with growth opportunities. As such premium income and profitability has increased across
the board.
On the one hand this is in response to a more positive insurance market internationally, but it also
underlines the intrinsic quality of these companies and their management teams.
Additionally, the Group was pleased to note that all of the Company’s Australian MGAs were able to
renew their underwriting capacity support with Lloyd’s and the international insurance markets.
As regards the Company’s newest investment, Ag Guard PTY Limited , although a start-up, which will
no doubt face initial challenges, we believe that the management team we have backed, with our
investment support and underwriting support from Munich Re, has a strong growth horizon looking to
the future.
New Investment
Ag Guard PTY Limited (“Ag Guard”)
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On 15 July 2019 the Group invested in Ag Guard, based in Sydney Australia.
The Group subscribed for a 36% equity stake for an initial cash consideration of AU$1.47m
(c.£823,000). Further consideration of up to AU$1.13m (c.£628,000) may become payable, subject to
performance.
Founders Alex Cohn (Managing Director), Martin Birch (Technical Director) and Ben Ko (Finance &
Operations Director) have considerable experience in the provision of general insurance services in the
Australian rural sector.
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It is expected that the Group’s investment in Ag Guard and the backing of a strong and experienced
management team will enable Ag Guard to become a serious market player over the next five years.
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Dividend
In July 2019 the Group paid a dividend of £1.714m to shareholders, equating to a dividend per share of
4.76p.
Directorate Change
On 23 August 2019, the Group announced that Camilla Kenyon will be resigning her position as
Executive Director, with effect from 31 August 2019.
Millie has worked with the Company since 2006. The Board is grateful for her contribution as an
Executive Director since 2011.
As part of Millie’s departure from the Group, an internal restructuring process was undertaken, with
her role being divided amongst the existing Management Team. The Investor Relations function will
sit with the Chairman and Managing Director, and New Business will be assumed by the Investment
Department.
New Business Opportunities and Outlook
In addition to making the investment in Ag Guard during the Period to 31 July 2019, the Group
continues to look at a number of MGAs and Brokers both domestically and internationally, alongside a
number of interesting opportunities outside the insurance space.
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