Mergermarket – “Propel Insurance eyes USD 130m revenue by 2021, could consider more bolt-ons, CEO says”

This article was originally published on Mergermarket on July 17, 2020

Propel Insurance, a business and personal insurance broker backed by Flexpoint Ford, plans to generate USD 130m in revenue by 2021 through organic growth, and could consider targets with more than USD 5m in revenue, said Kurt Carlson, CEO and president.

On 1 July, the Tacoma, Washington-based insurance broker announced the acquisition of Knoxville, Tennessee-based senior care practice HealthCare Services (HCS). Propel had around USD 95m in revenue before the deal, and HCS had around USD 20m in revenue.

Typically, Propel structures a deal 25% in equity and 75% in cash and debt, and it is willing to pay a multiple of 10x-12x EBITDA or a little higher, he said.

Propel does not consider itself a rollup strategic player, and it is focused on acquiring niche insurance lines in areas such as senior care, construction, manufacturing, and sports and recreation, Carlson said. Other frequent buyers typically acquire firms with less than USD 10m in revenue and pay around 7x-10x EBITDA, he said.

The company has looked at firms with as large as USD 80m in revenue, and it can easily acquire brokers with USD 50m in revenue, he said. Propel has not reached the nondisclosure agreement stage with any potential target, Carlson said.

“We don’t just sit around and wait for books to be sent to our equity partner,” he said, adding that he prefers to actively search firms and build relationships.

Propel had an organic revenue growth rate of 9.6% in 2019, Carlson said. The company, which was founded in 1923, has Washington offices in Tacoma, Seattle, and Longview; Oregon offices in Portland and Medford; a Tennessee office in Knoxville; and a North Carolina office in Charlotte, according to a press release. Propel also has insurance producers in Georgia and Connecticut, Carlson said. It has around 415 employees after the HCS deal, he said.

Propel wants to expand in Denver, Minneapolis, Salt Lake City, and Reno, Nevada as these regions have robust populations and businesses, he said, adding that it will consider acquisitions or organic office formations for geographic expansion.

Flexpoint invested a majority stake in Propel in 2018, and the sponsor has diluted itself by selling back stakes to Propel’s insurance producers and managers, Carlson said. Currently, Flexpoint has a minority stake, he said.

While Carlson talks frequently with PE firms that “just want to check in,” he does not receive direct approaches for an investment or sale. “I think those people would go directly to Flexpoint,” he said.

Carlson said he wants equity partners that want to be “equal partners” with Propel’s producers and managers and that want to assist in organic growth rather than convert Propel into a “financial engineering tool”. It is unlikely that Propel will part with an 80%-90% stake, he said.

Propel competes with Brown & Brown [NYSE:BRO] in Oregon and Hub International in Washington, he said.

Propel has mostly worked with Waller Helms Advisors for financial advice and uses Harlowe & Falk as its corporate law firm, he said.

In the HCS deal, Kirkland & Ellis acted as legal counsel to Propel and Flexpoint Ford. Reagan Consulting acted as financial advisor and Morris Manning & Martin acted as legal counsel in connection to HCS.

by Xinyi Jiang in Charlottesville, Virginia