Yes. For the right price.
Hellman & Friedman and Stone Point Capital (Sedwick’s owners) have owned the company for 3 1/2 years, paying $1.1 billion in April of 2010. Reports indicate Sedgwick’s earnings are around $200 million. With current multiples above 10x, a price in the $2 billion range is certainly possible; don’t be shocked if the final deal is worth as much as $2.4 billion.
There are a host of reasons for the TPA’s current owners to sell the company, with the primary reason likely the high valuations currently on offer. Doubling one’s money over four years is reason enough for the owners to consider a deal; when one considers the (high) likelihood that H&F and Stone Point undoubtedly leveraged the deal, the RoI picture becomes even more compelling.
That said, whoever buys the company will only pay a premium if they see a clear path to significant profitable growth for Sedgwick. After acquiring many service functions (e.g. investigations, MSAs) to deliver them in-house, signing deals with most vendors to share revenues, and acquiring other TPAs, there isn’t much else that can be done to jack up margins. Thus, it is all about the future.
And for now, the future looks bright. As P&C premiums continue to trend upwards, self-insurance is booming, driving more revenue and profit for TPAs. Several privately-held TPAs (York, CCMSI, TriStar – currently the largest) have grown nicely of late, and may find they are attractive acquisition candidates sometime down the road.
That said, competition in the P&C TPA business is fierce. Gallagher-Bassett is making moves to add expertise and strengthen its offering, streamlining processes and becoming more flexible. Broadspire has been adding significant business of late. And very large self-insureds are becoming increasingly demanding, forcing TPAs to incur significant costs to develop applications, processes, and expertise required by powerful risk managers.
All in all, it looks like the time is now to sell Sedgwick.
Stay tuned…
