$1.15bn deal sees Madison Dearborn Partners acquire stake in AmTrust units

January 2018 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

January 2018 Issue

Madison Dearborn Partners, a private equity firm with significant insurance services expertise, has announced a definitive agreement under which multinational property and casualty insurer AmTrust Financial Services, Inc. will transfer a 51 percent equity interest in certain of its US-based fee businesses to Madison. The transaction values the business at $1.15bn.

Through a combination of Madison’s equity investment of approximately $210m and debt borrowings by the new business, AmTrust will receive gross cash proceeds of approximately $950m at closing, subject to post-closing purchase price adjustments, final tax and indebtedness calculations. AmTrust will also retain a 49 percent equity interest in the business, which will be accounted for under the equity method of accounting. AmTrust plans to use the net cash proceeds to continue to target an operating return on equity (ROE).

Under the terms of the agreement, AmTrust will also have the opportunity to continue to be an important provider of insurance coverage related to warranty and service contracts, and the underwriter of the policies offered through managing general agents (MGAs). The agreement excludes AmTrust’s European fee operations, AmTrust’s workers’ compensation assigned risk administration business, other fee businesses related to residual lines of business and fee revenue generated from related parties or internal structuring.

“This transaction creates value for all parties,” said Barry Zyskind, chairman and chief executive of AmTrust. “For AmTrust, it delivers on our stated objective to unlock the value of our fee businesses, while also enabling AmTrust to participate in the future success of the new company and ongoing upside as a significant shareholder. The transaction also aligns with our recent initiatives to further strengthen our balance sheet and simplify our organisation, and provides us with capital to support AmTrust’s meaningful organic growth opportunities.”

Stuart Hollander, currently president of the special risk North America division at AmTrust, will become chief executive of the new company, the name of which is to be announced at a later date.

A firm with a long history of successfully investing in companies in the insurance sector and partnering with them to accelerate growth and achieve significant long-term value appreciation, Madison Dearborn Partner’s notable investments in this sector include NFP Corp., Ardonagh and Nevada Investments Topco Limited.

“We are excited to partner with AmTrust and form this new company and have it be a part of our portfolio of leading insurance services providers,” said Vahe Dombalagian, a managing director of Madison Dearborn Partners. “Madison Dearborn Partners has extensive experience investing in this market sector and a proven track record of successfully managing corporate carve-outs. We will utilise our resources and expertise to sharpen the new company’s focus on accelerated product innovation and market expansion, unleashing the business’s full potential, and obtain synergies inherent in the business, creating more opportunities for employees and deepening our client-partner relationships. We look forward to great success working together with AmTrust and the new company’s executive team.”

Serving as financial adviser to AmTrust in connection with the transaction is BofA Merrill Lynch. Legal counsel is Debevoise & Plimpton LLP. For Madison, Kirkland & Ellis LLP is acting as legal adviser.

The Madison/AmTrust transaction is expected to close in the first half of 2018, subject to customary closing conditions and regulatory approvals.

Adam Karkowsky, executive vice president and chief financial officer at AmTrust, concluded: “Madison shares our vision for success and ongoing value creation, and has a strong commitment to our business partners, customers and employees. We remain committed to supporting these businesses and our customers through our underwriting platform, products and services, as evidenced by the significant ownership stake we have retained in the new structure.”

Fraser Tennant