The deal is close to done, a $2 billion transaction that will make KKR one of the biggest investors in the workers’ comp transaction business. If it goes thru, Sedgwick will join bill review technology company Mitchell on KKR’s list of investments, raising questions about:
- how/if/where the two companies will join forces or work together, and
- what else is on KKR’s acquisition radar.
Sedgwick’s current owners, Hellman & Friedman and Stone Point, are going to do quite well on this transaction. As I said a couple weeks ago,
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.
KKR is clearly betting big on P&C transactions – the Mitchell purchase and this deal represent over $3 billion in total investment, almost as much as Apax paid for OneCall Care Management and Align Networks. (however most of the price is likely debt as investors almost always leverage their investment capital). To buyers, this makes sense, as bill review and claims processing are both “sticky” businesses; customers don’t like to move unless they HAVE to, making for good long-term relationships that, properly managed, generate increasing profits.
I’d expect the relationship between Mitchell and Sedgwick to become closer, however there may be some channel conflicts as other large payers may not like the joint ownership. Undoubtedly Mitchell and KKR will move as quickly as they can to assure clients there will be no such issues, however competitors will, however subtly, raise doubts. Recall there will be a “quiet period” during due diligence during which Mitchell et al won’t be allowed to say anything about anything.
Finally, Stone Point is still an investor in this space – they, along with lead investor Kelso, own PBM PMSI/Progressive.
What does this mean for you?
There’s no decrease in the private equity industry’s focus on workers comp; expect more deals in coming months.
