Onex to buy insurance brokerage from Goldman fund for $2.3 billion

Mon Nov 26, 2012 2:29pm EST
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By Bhaswati Mukhopadhyay

(Reuters) - Canadian private equity firm Onex Corp OCX.TO will buy U.S.-based insurance brokerage USI from Goldman Sachs Group Inc's (GS.N: Quote) private equity fund for $2.3 billion to expand its financial services footprint.

Insurance brokers have seen strong revenue growth over the past few quarters as insurers have raised prices on their offerings to offset big catastrophe losses last year.

"The U.S. property and casualty insurance industry seems a lot more attractive now because the business could generate good cash flow and that is important for private equity players," analyst Scott Chan of Canaccord Genuity said, adding that the deal is a "positive".

USI, founded in 1994 and taken private in 2007, offers property, casualty, employee benefit and retirement consulting services. The company says it is the ninth largest insurance broker in the United States. It bought TD Insurance Inc, the US insurance unit of Toronto-Dominion Bank (TD.TO: Quote) in September.

Onex, with about $14 billion of assets under management, has mostly invested in industrial and healthcare sectors. Its exposure to financial services is through its investment in the Warranty Group. The Chicago-based underwriter also provides credit insurance and other specialty insurance products.

"Given the current competitive deal environment, we are pleased with the announcement which represents the third significant deal Onex has announced since early September after a period of relative quiet," Phil Hardie of Scotiabank said in a note to clients.

"Cumulatively, we estimate the last three deals to contribute 6.2 percent of Onex's enterprise NAV."

The USI acquisition is the largest of the eight deals Onex signed this year, according to Thomson Reuters data.   Continued...