Wasting no time after its acquisition of United National Group, Fox Paine & Co. turned right around and filed with the SEC to float an IPO. In the filing, Fox Paine revealed that it paid $240 million for United National, a specialty insurance provider, and through the float the firm will look to raise up to $230 million.
Fox Paine completed the buyout of United National on Sept. 5, garnering 10 million class B common shares and 14 million series A preferred shares. The firm also used $100 million of the $240 million purchase price to acquire Wind River Investment Corp., the holding company for United National’s U.S. operations. Of the remaining $140 million, $80 million went to fund the insurer’s U.S. operations, while $43.5 million went to the capitalization of United National’s non-U.S. business. The remainder went to fees and expenses connected to the acquisition. Through the transaction, Fox Paine acquired an 82% stake in the company, and management held onto the balance.
Fox Paine also received an initial management fee of $13.2 million, and negotiated to receive subsequent annual sums of $1.2 million. Additionally, Fox Paine will control the board of directors of United National, with six of the 11 members to be nominated by the firm at the completion of the offering.
United National, based in the Cayman Islands, targets niche markets such as insurance for equine mortality or vacant property risks. The company reported $793.1 million in gross premiums last year, up from $670.5 million in 2001, while net premiums increased to $179 million from $173 million over the same period. United National has benefited from a surge in the E&S insurance (excess and surplus) market, which according to data from A.M. Best has seen year-over-year growth in direct premiums of 35.7% in 2001 and 61.7% in 2002.
Through the IPO, United National intends to use $175 million of the proceeds to redeem the Fox Paine and management preferred shares, with any leftover takings going toward general corporate purposes. Specifics regarding the anticipated number of shares and the proposed offering price were not included in the dossier. The company has filed to trade on the Nasdaq under the ticker symbol “UNGL.”
Merrill Lynch & Co. has been tapped as the lead manager on the IPO, while Banc of America Securities and Dowling & Partners will be the underwriters. Fox Paine will reportedly look to consummate the offering sometime in November, although a final offering date has not been determined.
From LBO to IPO
Fox Paine’s filing represents just one of many buyout-backed offerings. Other buyout shops either filing or completing an IPO in the past year include Clayton, Dubilier & Rice, Thoma Cressey Equity Partners, Forstmann Little & Co., Hicks, Muse, Tate & Furst, Apax Partners, W.L. Ross & Co. and Francisco Partners.
“The common view is that [the IPO market] is getting better,” said Warren Woo, managing director and head of UBS Warburg’s financial sponsors group. “The buyout community is usually opportunistic on exits…over the last year it’s been much more attractive to sell companies rather than take them public, but as the IPO market heats up they will increasingly look to it as an option.”
However, not every company is built for the IPO exit route. “For some of the larger companies, the IPO market will become more important, but there is still a size parameter as well as sector constraints,” said Glenn Gurtcheff, managing director and co-head of USBancorp Piper Jaffray’s middle-market M&A group.