KKR acquires majority stake in Sedgwick Claims Management

March 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity (PE) firm KKR & Co LLP announced in January that it had agreed to acquire a majority stake in Sedgwick Claims Management Services, a provider of insurance claims processing, for $2.4bn.

Under the terms of the deal, KKR will take control of the company from Sedgwick’s existing investors, including fellow PE firms Hellman & Friedman LLC and Stone Point Capital LLC. The two companies expect the deal to close during the first quarter of 2014, subject to regulatory approval and customary closing conditions.

KKR’s acquisition of Sedgwick, a firm which employs over 11,000 people across 200 offices in the US, is another example of PE’s burgeoning interest in the insurance claims industry. A burgeoning number of claims over the last two years has drawn the attention of the PE sector to the industry.

Indeed, KKR’s move for Sedgwick is the second acquisition that the firm has made in this field in recent months. September 2013 saw KKR announce that it had agreed a deal that would see the firm acquire car and property claims software company Mitchell International Inc from Los Angeles buyout firm Aurora Capital in a deal reportedly worth in the region of $1.1bn, including debt. “This is a critical time for employers as they adjust to an evolving health care delivery model, the shifting demographics of the workforce and a multitude of additional challenges,” said Tagar Olson, head of KKR’s financial services investment practice, in a statement announcing the deal. “Sedgwick has an exceptional management team, a strong track record of innovation and the technology-driven solutions to address these challenges. We believe our partnership will enable them to maintain and enhance their leadership position in the industry.”

Over the last 12 months, KKR has been particularly active in the buyout market. In January the firm also closed deals to purchase a stake in Italian vending machine company Gruppo Argenta for $135m and the helicopter leasing unit of global conglomerate Libra Group for over $100m. It purchased the Panasonic Healthcare unit for nearly $1.7bn and announced the $1.6bn acquisition of landscaping company the Brickman Group. In early February, KKR revealed that it had taken a 10 percent stake in German football club Hertha BSC Berlin for around $80m. Further, KKR and Affinity and Equity Partners agreed to sell Korean beer manufacturer Oriental Brewery back to Anheuser-Busch InBev in January in a deal worth approximately $5.8bn.

Sedgwick, based in Memphis, Tennessee, is a major provider of claims processing services. The company specialises in workers’ compensation claims, as well as disability, automobile, warranty, credit card and healthcare claims. The company was acquired by Stone Point and Hellman & Friedman in 2010 in a deal worth around $1.1bn. In a statement announcing the deal David North, president and chief executive of Sedgwick, said “We couldn’t ask for a better partner in the next stage of Sedgwick’s evolution. KKR has an exceptional record of investing in financial services companies and will be a valuable strategic resource for our organisation. We share a commitment to continued innovation in the claims and productivity management industry. My colleagues and I look forward to collaborating with KKR as we develop solutions for the changing needs of our clients.”

Sedgwick was acquired by Stone Point and Hellman in 2010 from Fidelity National Financial Inc, Thomas H. Lee Partners LP and Evercore Capital Partners. The firms paid approximately $1.1bn to acquire the company. The deal provided Stone Point and Hellman with a healthy return; the companies acquired Sedgwick in 2006 for just $635m.

The primary equity for the deal was provided by KKR’s own North American fund, with Deutsche Bank Securities, Morgan Stanley, Mizuho and UBS Securities LLC providing financing.

Richard Summerfield