It was recently announced that WRM America Holdings, a specialty lines property and casualty insurance and risk management holding company, had agreed to acquire the flood insurance business of Fidelity National Financial for $210 million. Fidelity National Financial’s flood and excess flood business – Fidelity National Indemnity Insurance Company (“FNII”) – will operate as a wholly owned subsidiary of WRM America.
WRM, a portfolio company of Aquiline Capital Partners, is a new A.M. Best A- rated specialty property and casualty insurance company created by Wright Risk Management, a respected insurance management company. According to the press release:
“The addition of the largest provider of federal flood insurance through the NFIP to the WRM America family of companies is another step in our continued growth as a specialty lines insurance company, is representative of our dedication to current and future public-private partnerships, and considerably increases our fee-for-service offering,” said William Fishlinger, CEO and Chairman of WRM America.”
So here we have another great example of a synergistic acquisition of a private equity firm’s portfolio company. But what got my attention in this transaction was the deal structure. Under the terms of the agreement, WRM America will acquire FNII and Fidelity National Insurance Services for $210 million – consisting of approximately $122.5 million in cash, $75 million in a seller note and approximately $12.5 million in an expected cash dividend.
Most middle-market business owners want to receive 100% of the purchase price for their companies in cash. Although every dealmaker would love to guarantee this, the reality is most deals close with a combination of cash, notes, stock, consulting agreements, and/or earn-outs.
The key to a successful sale is usually dependent upon the flexibility of the seller when it comes to deal structure. If you are dead set against anything other than an all cash deal, chances are good you will have a difficult time selling your company in the current business climate, or if you do, the amount you will be paid could be considerably less than what you might have earned with some flexible deal structuring. Also, when you are considering the risk/reward of a structured deal, keep in mind that many non-cash components such as the ones in the deal above can provide additional tax benefits to you, the seller.
So keep an open mind as you negotiate the sale of your company. If you are using an M&A advisor, they can help educate you on the various ways that a sale of your company can be structured with the goal of negotiating the best deal and the best deal structure possible. If you are doing it on your own, remember that an all-cash close is very rare. If you hold out for that, you may own your company for a long, long time.
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