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Thursday, Jul 18, 2024

Peter Foy Insurance Plans to Become Bigger Fish

The Valley’s most aggressive growth-by-acquisition campaign has attracted the attention of a major equity investor. Peter C. Foy & Associates Insurance Services in Woodland Hills announced in April that it received financial sponsorship from Bay Area holding company Huntsman Gay Global Capital. Financial terms of the private transaction were not disclosed. The deal is significant both for its participants and its timing during the COVID-19 pandemic. PCF has been hyperactive in the merger and acquisition market, completing dozens of deals since 2018. The agency mostly buys smaller, specialized brokerages in the insurance sector. These transactions established PCF in markets outside of California, including New York, Illinois, Nevada, Colorado, Arizona, Kansas, Kentucky and Florida. The company’s workforce has grown to more than 400 employees nationwide. According to Chief Financial Officer Dani Goldsmith, Huntsman Gay’s backing means PCF can lean even further into its growth strategy. “They’re very bullish. They wrote a big equity check and are putting (in) a lot of resources,” he said. The middle-market private equity firm in Palo Alto was founded in 2007 by politician Jon Huntsman, former Bain Capital executive Robert Gay and legendary National Football League quarterback Steve Young, who won three Super Bowl championships with the San Francisco 49ers franchise in the 1980s and 1990s. The firm has a favorable track record in the insurance space. Portfolio company Davies Group, an insurance tech provider in the U.K., completed 17 acquisitions and quintupled revenue in three years with Huntsman Gay as a financier. In a 2019 statement, Huntsman Gay partner John Block said Davies’ growth demonstrates the core of the investment firm’s expertise: “positioning our platform companies to scale through complementary add-on acquisitions.” That bodes well for PCF. Goldsmith emphasized management and existing investors, including private firm BHMS Investments in New York, will retain their stakes in PCF. Sponsorship means Huntsman Gay will operate like a major shareholder – it can be involved with issues relating to PCF’s balance sheet, but existing senior management maintains control of day-to-day operations. It’s no coincidence that PCF’s incredible stretch of growth has occurred with Goldsmith in a top position. “The model that I had done when I was the CFO at HUB International, we had done over 200 acquisitions. It’s a tested model and it works very well,” he said. “Since the first agency that (PCF) bought, we’ve grown more than 17 times over.” Transaction in crisis Goldsmith said the investment wasn’t in the works long before the virus broke out, and for Huntsman Gay to close the deal amid a global pandemic is “a big vote of confidence.” “They did that with the idea that the company is going to continue to grow – they like the trajectory,” he said. He added that the pandemic has been good for business at PCF. “March was the highest sales month we’ve had since October, and was 20 percent higher than that month the prior year. … In April, we had another record month. What we found was we had really high close ratios because we were able to get a hold of (our clients),” he said. At this point, the company has been working entirely from home, conducting inspections, underwriting and performing other duties virtually. Pandemic aside, Goldsmith said Huntsman Gay’s investment timing is smart in that PCF has proven itself but still has a lot of buying left to do. “There’s many states where we have no locations where we’d love to have a location. … We bought a 90-year-old company in Flint, Mich., but we’re nowhere else in the Midwest. Out of the East Coast, we’re only on the Eastern shore. We’re not in the mid-Atlantic. There’s so much virgin territory for us.” In an interview with the Business Journal last fall, Goldsmith explained PCF likes to “treat acquisitions more like mergers,” with bought companies retaining their locations, employees, branding and identity. He said the approach helps acquired companies maintain their local, community-focused service styles. To successfully break into markets like Kansas, he said, that’s an important factor. Goldsmith noted that this growth-by-acquisition model comes with no visible ceiling to growth. “HUB’s been doing it for 30 years, and they’re still doing it. Their sales are near $2 billion and they’re still owned by private equity – Hellman & Friedman in Northern California – and they’re still doing acquisitions. We’re a small fraction of that size. We’re actually able to be more nimble and we have a higher growth trajectory because we’re earlier in our development,” he said. And while the virus and resulting economic downturn has put a freeze on most M&A activity, Goldsmith said PCF’s voracious appetite can’t be quelled. “We’re going to close transactions in June and July,” he said. “There’s some in California. Some will be in the Midwest. Some are going to be bigger than we’ve done (before).”

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