Private equity to fund Cooper Gay expansion

It looks like Toby Esser’s wish is coming true. In April the Cooper Gay Swett & Crawford chief executive told Insurance Times in an exclusive interview that his brokerage was seeking private equity investment so it could realise its growth ambitions. Today we reported the latest developments in the search, as US-based private equity firm Lightyear Capital became the firm most likely to cough up the cash.

If the deal goes through it will be a boost for Cooper Gay. Esser is desperate to start moving the business forward now it has had time to digest Swett & Crawford, the US broker it acquired in 2010.

He had hoped to raise investment through an initial public offering, but poor conditions in the capital markets have put paid to those plans. The heavy debt burden Cooper Gay inherited when it bought Swett & Crawford has restricted the group’s ability to grow through acquisition. CGSC’s net debt was $358m in 2011 – 5.2 times underlying earnings before interest, taxes, depreciation and amortisation (EBITDA).

So the private equity route is now the preferred option and for Esser it’s time to go again. He has his eye on more acquisitions in key growth markets but they’re unlikely to be as transformational as the Swett deal. The broker will also likely use some of the cash to pay down some of the debt. Esser will have to balance his appetite for growth alongside his ability to keep the debt within his comfort zone. He’ll have to play a shrewd game.

Libor scandal fallout

We also reported Guy Carpenter’s study of the 1 July renewals, in which it said that reinsurers were reluctant to provide UK insurers with financial institutions’ cover at recent renewals because of recent banking scandals such as the libor fixing for which Barclays was fined a record £290m for manipulating the rates.

This could become problematic if insurers are restricted from offering those types of cover if reinsurers raise rates and take cover off the market completely.