BMS seen as more likely seeking capital to fund growth than a sale

According to a report yesterday from Bloomberg, the main investor backers of insurance and reinsurance broking group BMS are considering a sale of the company, with a US $720 million price tag (UK £600m) cited, but we’re told it’s more likely the company is looking to build out its capital base to fund future growth, if any transaction is to occur.

The news comes at an interesting time, as in the broking space there could be a few potential buyers were BMS’ business to go up for sale.

BMS is not one of the largest broking groups, but it is a specialist when it comes to the reinsurance sector, with its BMS Re arm active in placing business to both traditional and insurance-linked securities (ILS) fund markets.

In fact, BMS has been a particularly active originator to certain ILS and collateralised reinsurance markets over the years, while also providing a range of capital market services.

In Bloomberg’s report yesterday, BMS’ annual earnings were cited around the UK £100 million mark (US $120m).

However, BMS Re’s reinsurance revenues alone were estimated to be around US $95 million in 2021, while overall BMS Group business revenues are said to be between US $200 million and US $250 million.

BMS’ major backers are currently Canadian pension fund British Columbia Investment Management Corporation (BCI) and private equity investors Preservation Capital Partners (PCP), who bought into the brokerage in 2019 at a roughly UK £500 million (US $636m) valuation.

Now, the pair are reported by Bloomberg to be looking to sell their stakes, at an aforementioned US $720 million valuation level.

It’s understood that the management and staff of BMS remain significant shareholders in the business alongside these investment firms.

Bloomberg reports that investors BCI and PCP are working with bankers Evercore to evaluate strategic options for the BMS Group business, while they say deliberations are still going on and there is no guarantee of a sale.

Potential buyers, if the major stakes in BMS did come up for sale, could range from Arthur J. Gallagher, a firm that recently raised equity capital for an acquisition warchest, to mid-sized rivals Howden, Lockton and Acrisure (and others with backing), established giants Aon or Marsh (although it may not be a meaningful enough bolt-on for them), and any number of private equity firms, who often see broking businesses as attractive revenue earners and the origination end of the insurance value-chain as an area of focus.

But, our sources tell us that a total sale of these two key stakes in the BMS broking business is seen as unlikely, with a different type of transaction, one that brings in more capital, seen as a more likely way forward for the company.

Most likely, we’re told, is some sort of arrangement that sees BMS expanding its capital base. We understand that this could include new investor backing entering the BMS business.

There is the potential for the existing backers, BCI and PCP, to sell part of their stakes to accommodate that we’re told, although at this time we’re told there isn’t any imminent deal.

Often, for a new investor to come in, especially private equity money, the stakes would need to be trimmed to balance out holdings somewhat. This is typically the case where it’s a deal to build out additional capital.

This could also happen if another established mid-sized broker wanted to buy in, as it would likely require a more equal balance of ownership to achieve that.

We’re told the broker is considering strategic options at this time and that there isn’t any formal process at this stage, as BMS looks for a route to fuel further growth.