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KKR Agrees To Pay $2.4 Billion For Majority Of Sedgwick Claims Management

Sedgwick Claims Management Services, which is based in Memphis Tennessee, announced this morning that giant alternative asset management firm KKR, together with management, has agreed to buy majority ownership of the company from a group of investors, for approximately US$2.4 billion.
Current investors in the company include Hellman & Friedman and Stone Point Capital, both private equity firms who have controlled the company with management since 2010.

Accordingly Sedgwick, which offers, technology based, claims and productivity management solutions and claims management services, to the insurance industry, is essentially now being transferred from one group of private equity investors to another, in what is known in the private equity trade as a “secondary” transaction.

Before its current owners, the company was owned by another group of financial investors, including Fidelity and private equity firms Thomas H. Lee Partners and Evercore. Even before that it used to belong to the insurance brokerage and risk management company Marsh & McLennan, so one could say that it has been around the houses a few times.

KKR KRAVIS ROBERTS

                                                                                                                                                                              Henry Kravis and George Roberts, KKR/ Getty

There are two key points to note in the quite careful phrasing of the language of the announcement. First, that Sedgwick’s management is again participating as principal(s) in the transaction and, second, that the US$2.4 billion price tag mentioned appears to be for an unspecified level of “majority ownership”, rather than this necessarily being the valuation of the whole business. It is also not entirely clear, either, if the stated price tag is for the equity component acquired alone, or whether it relates to total enterprise value which would also include existing debt.

US$2.4 billion remains nevertheless a very big number for any major company, whatever the precise definitions entailed, and the deal is now expected to close in the first quarter of 2014. Once completed, the deal will also become KKR’s second insurance industry claims processing investment. KKR had also earlier acquired, automobile and property claims software group, Mitchell International for US$1.1 billion just a few months ago.

The routine administration of insurance company claims used until very recently to represent something of a time warp back to previous centuries, with mountains of paper files, warehouses full of magnetic tape and loads of incompatible software systems even within, let alone between, many insurance companies and, as well, the insurance agencies who represent them.

Sedgwick has built a big business pitching in to offer modern, integrated technology services in these areas, especially in the exploding health insurance segment. Sedgwick currently handles more than 2 million claims annually and has fiduciary responsibility for associated claim payments totaling more than US$11 billion every year.

The company specializes in processing claims for a wide variety of insurance industry segments, in both the United States and Canada. These include, workers’ compensation; disability; Family and Medical Leave Act, and other employee absence; managed care; general, automobile, and professional liability; warranty and credit card claims services; fraud and investigation; structured settlements; and Medicare compliance solutions.

David North, President and CEO of Sedgwick said with the announcement, “We couldn’t ask for a better partner in the next stage of Sedgwick’s evolution, ” and he continued,

“KKR has an exceptional record of investing in financial services companies and will be a valuable strategic resource for our organization. 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.”

KKR is putting its money where its mouth is with this transaction, and Tagar Olson, a “Member” of KKR – which probably means something like “Managing Director” – and head of its financial services investment practice said, “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, ” and he continued,

“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.”

Notwithstanding some longstanding consumer uncertainties about the efficacy of insurance company claims processing, as perhaps best exemplified by Matt Damon in the 1997 movie The Rainmaker, directed by Francis Ford Coppola and adapted from the novel of the same name by John Grisham, it remains an industry of critical importance.

This is so particularly in the medical sector as all participants – governments, the medical industry and the insurance industry seek to do a good deal better than just continue to muddle through in the next decade as they have in the past. Technology solutions are going to be a major contributor in many areas of this space as we move forward, hopefully though not just at the expense of rolling over the little guy, as portrayed in the movie.

About KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a New York based leading global investment firm with more than US$90billion in assets under management.

With offices around the world, including seven across the Asia Pacific region, KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments.

The company complements its investment expertise and strengthens interactions with fund investors through its client relationships and capital markets platform. It is publicly traded on the New York Stock Exchange, under the stock symbol KKR.

About Hellman & Friedman

Hellman & Friedman LLC is a leading private equity investment firm with offices in San Francisco, New York and London. Since its founding in 1984, by Warren Hellman and Tully Friedman H&F has raised and managed over US$25 billion of committed capital.

About Stone Point Capital

Stone Point Capital is a global private equity firm based in Greenwich, Conn. Stone Point serves as the manager of the Trident Funds, which have raised more than US$10 billion in committed capital to make investments in the insurance, employee benefits and financial services industries.

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