Advent, Conning Grab LTCG –

Advent International and Conning Capital Partners, in another buyout deal with the aging baby-boomers in mind, acquired Long Term Care Group, Inc. for $130 million. The pair purchased the business from a venture capital group comprised of New Enterprise Associates, Warburg Pincus, Franklin Ventures and Pacific Ventures, which had launched the business out of a 1996 carveout of United HealthCare Corp.’s long-term care division.

“The long-term care industry is one of the fastest growing personal lines of insurance in the country,” Advent Partner Bob Taylor said. “This company really has a great wind at its back, and you don’t have to look too long to see where the trend is coming from,” he added, referring to the aging baby boomer generation as the force behind the market’s growth.

Long Term Care Group provides a range of outsourced services to insurance carriers focused on the long-term care segment of the market, including application processing, underwriting support, policy administration, claims processing and care management. Neither Advent nor Conning could comment on the company’s financial performance other than to say it is profitable.

To purchase the business, Advent anted up $46 million of equity, with Conning contributing $23 million and LTCG management $6 million. Merrill Lynch Capital provided a senior debt financing package, while Northwestern Mutual chipped in with subordinated debt. UBS advised the sellers on the deal. The equity for the transaction came out of Advent Global Private Equity IV, a $1.9 billion fund, and Conning Capital Partners VI, a 2000-vintage fund with $276 million of capital under commitment.

The thesis behind this investment rests squarely in targeting the baby boomer generation. “There’s been and should continue to be strong organic growth in LTCG’s existing client base,” Conning Partner Michael Aspinwall said, further noting the company should continue to add to its client base, and will likely look at supplementing its services with ancillary product lines.

Behind the growth of LTCG’s clients is the expansion of America’s elderly population, with current estimates now at 82 million U.S. citizens that were born before 1959. Out of that number, the buying group estimates that only 6.5 million currently have long-term care insurance. As healthcare costs rise and Americans worry about the coverage provided Medicare, the number of people with long-term care insurance is expected to triple in the next six years.

Also aiding the industry is the recognition from the federal government that long term care of the elderly is something that needs to be tackled now, rather than down the line when it could be too late. In 2002, the Federal Long-Term Care Security Act of 2000 became effective, which kicked off the LTC insurance program for federal employees. Also, the Bush administration has been pushing a tax initiative that would make long-term care insurance premiums deductible for taxpayers.

The investor group, in addition to the demographic trends, also cited the sector’s barriers to entry as another appeal to Long Term Care Group. “What this company does is not easy,” Taylor stated. “Besides the network and the infrastructure that go into building a company in this space, if an insurance company wants to enter this segment, it would require an investment of between $15 million to $20 million.”

Aspinwall added, “Not many businesses in this sector are able to achieve this critical size with such good growth prospects… From the back-office processing perspective, this company administers more policies than anyone else in the long-term care segment, except for GE and John Hancock. Plus, the investor group before us had invested $50 million into the company in the last seven years, and built an extremely flexible architecture in their systems.”

Just prior to being taken over by Advent and Conning, LTCG itself had agreed to acquire the third-party administrator contracts of ERC Long Term Care Services in March. The purchase, scheduled to close in the second quarter, will add 13 new clients and more than 20,000 individual policies to LTCG, which already administers policies to roughly 600,000 people.


Buyers: Advent International and Conning Capital Partners

Target: Long Term Care Group

Sellers: New Enterprise Associates, Warburg Pincus, Franklin Ventures and Pacific Ventures

Purchase Price: $130 million

Advisor: Sellers: UBS

Legal Counsel: Advent, Conning: Pepper Hamilton LLC

Accountant: Advent, Conning: PricewaterhouseCoopers