GS Capital Partners' $1.4 billion deal to purchase the USI Holdings Corp. brokerage, while not a shock, reflects the private equity market's interest in the insurance industry and may harbinger more deals before year's end, an analyst said.

Donald Light, senior analyst with Boston-based Celent, said that while the transaction came as no surprise, there were two points worth noting.

Private equity firms are looking at investments in industries that are undergoing change, and the insurance brokerage business is certainly one of those, he observed.

Second, USI has not been implicated in the brokerage contingency fee scandal and subsequently has not had to give up any contingent commissions.

For a private equity firm, he noted, that means USI is still capable of taking advantage of both forms of compensation, as some carriers are giving up paying contingent commissions but stating they would develop some kind of compensation formula to ensure continued agency profitability.

“Private equity firms are awash in cash right now, and because of the upheavals in the insurance brokerage business, it has become very attractive to them,” said Mr. Light.

While he did not expect to see a rash of private equity buyouts, he said he would not be surprised if there were one or two more this year outside of the top three.

The advantage for USI, he added, is that it can continue with its strategy of acquiring more small agencies, with additional funding from the private equity backers, and not have to worry about the impact of those acquisitions on income statement from public investors.

David Lewis, an analyst with SunTrust Robinson Humphrey in Atlanta, said the USI deal is a positive move for the brokerage. The firm will be able to complete integration and margin expansion plans quicker as a private company “with cheap capital,” he added, and continue to pursue its acquisition strategy. He said no other bidders are expected.

USI has struggled to meet analysts' revenue and earnings forecasts, Mr. Lewis noted, causing the firm to trade “at a significant discount to its peers. We continue to view USI as having an attractive business model.”

Mr. Lewis told National Underwriter he did expect to see massive acquisitions of the public insurance brokers, but there would be continued consolidation of brokers with revenue between $1 million and $10 million.

Shareholders will receive $992.8 million for the 58.4 million shares of company stock outstanding. GS Capital, a private equity affiliate of Goldman, Sachs & Co., will also assume close to $300 million of USI's debt.

GS Capital will pay $17 a share on its common stock to shareholders. The firm's stock closed up $1 at $16.55 a share.

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