Loss adjusting’s private equity attraction

September 23 2019 by Andrew Tjaardstra

Charles Taylor has agreed to a takeover bid of £261 million (US$325.2 million) by US private equity firm Lovell Minnick Partners in a sector where acquisition activity and deals have spiked over the last 18 months.

The company, listed on the London Stock Exchange, had revenues of £263.3 million in 2018, and adjusted pre-tax profits of £22.3 million (US$27.8 million) but fell to a loss of £3.3 million compared with a profit of £7.4 million in 2017; one of the principle reasons for the loss was its investment in the business.

Capital markets broker Canaccord Genuity described the acquisition price as “fair”.

In loss adjusting, Charles Taylor is known for its handling of aviation, energy, marine and technical P&C risks; in a more complex risk environment – the demand for such services should increase.

The aviation sector in Asia, for example, is growing rapidly as China’s middle-class consumers look to expand their horizons and Asian countries invest heavily in their transport infrastructure; for example, Beijing Daxing International Airport is expected to open this month at a reported cost of US$11.2 billion.

Charles Taylor has recently expanded in Hong Kong, albeit in a controversial fashion, while in Asia Pacific it already has offices in Australia, China, Indonesia, India, Japan, Malaysia, Pakistan (two associate offices), Singapore, South Korea and Taiwan.

Last October it bought FGR group, a loss adjusting and claims programme management group, headquartered in Chile. FGR employs around 385 people in 17 locations in Chile and Peru and has a growing presence across South America.

The business is also more than just a lost adjuster, its insurance management arm performing steadily, while its insurtech arm is also doing well.

Edward Creasy, Charles Taylor’s chairman, said: “As a private company with Lovell Minnick’s backing, I believe Charles Taylor will continue to capitalise on opportunities in its markets and ensure the future success of Charles Taylor for employees, partners and clients.”

Another opportunity is the US where climate change appears to be fueling more damaging hurricanes in the most mature market in the world.

Private equity sees loss adjusting as a solid platform to build revenues from. As natural disasters spike as a result of climate change and insurance penetration increases globally then the demand for adjusting will remain strong and is likely to grow over time.

In September US PE giant the Carlyle Group bought an undisclosed majority stake in Sedgwick from PE rival KKR for around US$6.7 billion; the deal followed Sedgwick’s acquisition of Cunningham Lindsey earlier in the year.

The move increased Teenessee-headquartered Sedgwick’s global expansion and has since gone on to acquire the likes of Insight Adjusters and Surveyors in Singapore to expand its presence in Asia and has undergone a significant rebranding exercise.

Also this year French adjuster and services group Stelliant, backed by Paris-based private equity firm Naxicap Partners, bought a majority stake in specialist adjuster and consulting firm GM Consultant.

TGS, a subsidiary of Stelliant, is merging with GM Consultant, founded in 1999, and which has offices in Algeria, Belgium, France, Hong Kong, Italy, Romania, Senegal, Singapore, the UK and the US. The two business will generate revenues of around €50 million (US$56 million) and employ 400 people.

Meanwhile the deal to buy Charles Taylor looks like it will go through as Charles Taylor said that “in response to unsolicited approaches from Lovell Minnick and others, Charles Taylor and its advisers had engaged in discussions with a number of interested parties over recent months.”

Its statement continued: “The offer from Lovell Minnick was the most attractive offer received by Charles Taylor. Charles Taylor confirms that, prior to the announcement of the recommended offer, talks with all other parties were terminated.”

The future, at the moment, looks bright for loss adjusting and private equity firms, which have been achieving some record breaking raisings; handling claims is a steady stream of revenue which can be combined with M&A.

Away from the public markets, Charles Taylor with the help of Lovell Minnick Partners will be looking to grow even faster.