* Onex Partners III to make equity investment of about $700
* USI says its employees will remain investors in the
* Deal expected to close by year end
* Onex shares fall 2 percent
By Bhaswati Mukhopadhyay
Nov 26 Canadian private equity firm Onex Corp
will buy U.S.-based insurance brokerage USI from
Goldman Sachs Group Inc's 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 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.
Onex, whose businesses generate annual revenue of $34
billion, said in September it would buy German plastics
machinery maker KraussMaffei AG and packaging graphics services
provider SGS International Inc.
"We expect Onex to continue to pursue acquisitions as it
looks to deploy high levels of uncalled third-party capital
commitments and its own excess cash," Scotiabank's Hardie said.
Onex Partners III, Onex's $4.7 billion private equity fund,
will make an equity investment of about $700 million. Onex is a
25 percent limited partner in Onex Partners III. Onex is a
co-investor in the transaction, which is expected to close by
the end of the year.
USI said its employees, who invested alongside the Goldman
Sachs private equity fund GS Capital Partners to take it
private, will remain investors in the company.
"We would not be surprised if USI continues to be an
industry consolidator under Onex's ownership," CIBC World
Markets analyst Paul Holden said in a note to clients.
GS Capital Partners and Onex own aircraft manufacturer
Hawker Beechcraft Inc, which last month unveiled a
plan to exit bankruptcy.
Onex was advised by Morgan Stanley for the USI deal, while
GS Capital Partners was advised by Goldman, Sachs & Co and RBC
Capital Markets LLC.
Shares of Onex fell 2 percent to C$39.77 on the Toronto
Stock Exchange on Monday.