Lightyear Capital has made a living targeting niches within the financial services space. The New York-based firm, through its latest acquisition, has stuck with this strategy and now controls the No. 7 crop insurer, The NAU Group.
The combination of the Great Depression and the Dust Bowl in the late 1930s brought life to the first authorized Federal crop insurance program, the Federal Crop Insurance Corporation (FCIC). Since that time, farmers have relied on crop insurance to guard against planting and yield losses. The program now offers 22 different insurance plans covering over 350 agricultural commodities across the U.S., and last year the industry had roughly $4.3 billion in crop insurance premiums, according to reports.
Companies that serve this space are few and far between, which was what ultimately made this segment appealing for Lightyear. “We’re always looking for specialized areas in the financial services space,” Lightyear Founder and CEO Donald Marron told Buyouts. “There are only 17 companies that operate in this field, so this would certainly qualify as a specialized business.”
The NAU Group, according to the press release, was the seventh largest writer of crop insurance in the U.S. in 2003. The company is based in Ramsey, Minn., and runs branch offices in Fargo, N.D. and Woodland, Calif. What separates NAU from its peers, Lightyear Managing Director David Glenn noted, is its management team and a comprehensive historical database on acreage and yields.
Former Federal Crop Insurance Head Jim Deal launched the company in 1980 shortly after leaving his post at the FCIC. Marron calls Deal and his brother Greg “true pioneers” in the crop insurance industry and credits the pair as having been involved in forging the partnership between the government and the private sector in the early 1980s.
Lightyear also likes the fact that the industry has the backing of the government. “There are subsidies for the farmers and the companies, so there’s a certain amount of protection in this investment,” Marron said, adding, “This can also be viewed as a growth area. The government is encouraging more farmers to participate in this program.”
No deal terms were disclosed, although Marron did say it was a control transaction for Lightyear. NAU had hired MMC Securities Corp. to act as financial advisor, while Keefe, Bruyette & Woods served in the same capacity for Lightyear. Keefe, Bruyette & Woods and FTN Financial Capital Markets served as co-placement agents for preferred term trust securities issued as part of the transaction.