GTCR managing director Aaron Cohen says the CEO, not the deal, is the scarce resource and the most important underwriting decision.
Cohen says insurance brokerage stays less cyclical and asset-light, with valuations rising to roughly 17 to 19 times from 8.5 times before the financial crisis.
GTCR rebought Assured Partners with CEO Jim Henderson nearly six years ago, building it past $1bn of EBITDA before the $13bn sale to Arthur J. Gallagher.
Why GTCR backs CEOs first to build insurance broker giants
Insurance brokerage is an attractive private equity market because revenue is recurring, capital needs are light, and thousands of small brokers can still be acquired. GTCR's edge is backing a proven CEO first, as it did with Jim Henderson at Assured Partners, then letting specialization, scale and rising premiums compound. Valuations have doubled since the financial crisis, and organic growth is what justifies them.
Takeaways
GTCR bets on the CEO, not the deal. Cohen says the scarce resource is a proven CEO who has already created equity value in that industry. Leaders do not always transfer across size or sector, since a command-and-control style that works at a few hundred million dollars fails at $5bn.
Brokerage economics are resilient and cash generative. Cohen cites low cyclicality, asset-light operations, capex of only a few percent of revenue, and margins of 28 to 35 percent for solid brokers. Tuck-in acquisitions bring tax benefits in a market with thousands of brokers left to buy.
Specialization and diversification drive consolidation. Specialist brokers retain customers in the mid to high 90s percent, against high 80s to low 90s for generalists. GTCR also avoids brokers dependent on one carrier or one broker, preferring diversity across carriers, customers, producers and end markets.
Acquired brokers often perform better after a sale. Founders roll proceeds into the business and gain the acquirer's expertise, so retention and organic growth tend to rise. Customers rarely shop a broker's price, and the top 20 brokers are mostly billion-dollar-plus companies.
Premium inflation lifts broker revenue. Organic growth tracks inflation plus something extra, with social inflation from large jury verdicts and new risks like cyber pushing premiums up. Small and mid-sized clients pay commission, so rising premiums raise revenue, while brokers take no underwriting risk.
Valuations have roughly doubled since the financial crisis. Brokers traded near 8.5 times before the crisis and now trade at roughly 17 to 19 times. Cohen credits recurring revenue, M&A opportunities and a long stretch of low interest rates, and says organic growth supports the premium.
Technology lags but AI is not seen as a threat. Cohen says the industry runs 10 to 15 years behind others and is in the third inning of adoption. He considers AI unlikely to upend brokerage, and sees no regulatory change currently worrying the sector.
How Assured Partners was built and sold
GTCR met Jim Henderson through Ironshore, and the two sketched the idea on a napkin.
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On this episode 2
Show 1
GTCR hired a leadership team before owning any asset and burned cash paying them until it found a platform.
It bought Neace Lukens as the platform, and the team was used to running billion-dollar businesses.
The first version was sold after exceeding the napkin plan by more than three times.
Henderson later asked to work together again, and GTCR rebought the business almost six years ago.
The company grew past $1bn of EBITDA before the $13bn sale to Arthur J. Gallagher in November.