EXCLUSIVE - Genstar intends to sell its stake in Financial Horizons Group

By Serge Therrien | September 09 2016 09:29AM

Genstar Capital, a private equity firm, has decided to sell its stake in Financial Horizons Group (FHG) – one of Canada’s largest managing general agencies. According to informed sources contacted by The Insurance and Investment Journal, Genstar currently owns 75% of FHG’s equity while the MGA’s executives hold the remaining 25%. San Francisco-based Genstar acquired its stake in FHG in 2010.

Genstar’s decision to divest is in line with its general investment strategy. Genstar specializes in private investments in medium-sized companies in the industrial technology, software, healthcare, and financial services industries. The firm typically invests in companies with an EBITDA (earnings before interest, taxes, depreciation and amortization) greater than $10 million which are looking for an equity injection of between $50 million and $300 million.

Market value of about $300 million

According to our sources, Financial Horizon’s EBITDA is now at about $30 million. Based on sales ratios observed in the distribution sector of the industry, the market value of the MGA would be around $300 million. Genstar’s strategy generally involves preparing to divest when a company’s EBITDA reaches $30 million.

Many financial advisors were made aware of Genstar’s divestment decision some time ago when President and Managing Director, J. Ryan Clark, informed a number of people that he would like the transaction to be finalized by the end of 2016, said our sources.

Declined to comment

Contacted by The Insurance and Investment Journal, Genstar’s spokesperson, Chris Tofalli, said the company does not comment on a possible sale of a business until it is announced.

For his part, John Hamilton, president and CEO of Financial Horizons Group, also declined to comment.

Divestment, after 7 years, is a common pattern among venture capital funds.  Furthermore, on its website, Genstar states that as soon as it makes an investment, it begins preparing an exit strategy with the executive team.

Potential buyers include another venture capital firm 

According to several people who asked to remain anonymous, potential buyers include another venture capital firm that invests in companies with EBITDA’s higher than $30 million. This could allow Financial Horizons to grow, perhaps even doubling the size of its EBITDA within a period of 7 to 10 years.

Insurance companies are also on the list of interested potential buyers.

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