To complement its strong organic growth strategies with inorganic ones, MarshBerry recently secured growth capital as part of its partnership with private equity firm Atlas Merchant Capital (Atlas). Announced on January 11, 2022, this new partnership should help MarshBerry accelerate its growth goals by improving and expanding the quality of services and market intelligence it provides to clients. Access to additional resources should assist MarshBerry to better execute on strategic growth initiatives, including expanded client solutions and acquisitions across the U.S. and Europe.
Historically, growth capital providers have sought majority ownership to capture the better part of the economic benefits from an investment opportunity. More recently, however, the large amount of private capital chasing a finite number of good companies has changed this dynamic such that capital providers are more willing to take non-control positions to access well run firms with high quality management and attractive investment return prospects.
Who are the typical providers of minority equity capital used to grow a firm’s revenues and earnings? Growth capital providers similar to Atlas include private equity (PE) funds and family offices that invest in companies seeking to (a) expand or restructure existing operations, (b) enter new markets, (c) finance an acquisition, or (d) grow a firm’s producer base, while allowing the original owners to maintain control of the business. Maintaining corporate governance control as well as economic control is the hallmark of growth capital providers and is what draws owners to this structure (rather than to buyout capital or debt financing).
As an owner seeking to grow your business, you want flexibility; to continue to make decisions critical to the success of your business. In addition, you want to maintain ownership. But you don’t want to assume exorbitant amounts of debt. Nor do you want to cash out because you believe the business has terrific long-term growth potential. You want to accelerate growth but may need additional financial resources.
Now, you have an added option. Growth capital can infuse a business with added funds to help accomplish many of its long-term objectives: roll out a new product offering; invest in technology, hire new producers; buy down inflated producer commission splits, expand in an attractive geography; or complete an acquisition.
You could also diversify your personal balance sheet by using this additional capital to buy back some of your equity in the business. Such a strategy could reduce shareholder risk, achieve partial liquidity for you or a number of shareholders irrespective of whether individuals intend to work for many more years or are headed toward retirement. Partial liquidity can be achieved while retaining significant business economics and maintaining majority ownership and operating control of the firm.
While a key benefit of growth capital is the ability to maintain majority control, it is not the only one. Raising growth capital permits owners to leverage their historical investment (cash and “sweat equity”), using others’ funds to help grow, thereby increasing available cash flow to execute upon the owners’ growth strategy. Second, achieving greater diversification of one’s assets is also a frequent objective of owners seeking growth capital. By selling only a minority portion of one’s equity stake, an owner can achieve diversification and partial liquidity.
Some owners are focused on market expansion — extending their footprint to reach new customers. Others want to diversify their product offerings by adding new coverages they don’t currently offer. There are many ways that owners plan to grow — but the key is having a plan before you pursue a capital raising effort.
In short, every growth capital provider is different (e.g. differences in holding period, level of financial reporting and corporate governance), every deal is different and every negotiation process is different. Therefore, don’t go it alone. Enlist a trusted adviser with experience in helping firms such as yours raise growth capital. Doing so may help you avoid making mistakes that could take away the very thing you so wanted to protect — economic and operational control.
If you have questions about Today’s ViewPoint or would like to learn more about the availability of debt capital in the insurance brokerage market, please email or call Gerard Vecchio, Managing Director, at 212.972.4886.
Investment banking services offered through MarshBerry Capital, LLC, Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, LLC. 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440.354.3230)
MarshBerry is excited to announce it advised more than 95 companies and completed 130 M&A transactions (83 sell side/47 buy side) in 2021, closing another record year for the firm. MarshBerry continues to remain the number one sell side advisor for the 23rd year in a row and retains the top spot in the industry for total number of clients advised.