Black Diamond believes
that a disciplined approach is required
at all stages of the investment process
and invests in insurance companies and
brokers that represent a platform for growth
or offer a great value creation opportunity.
The Fund’s investments are structured
with governance as an important consideration.
Black Diamond is open to being either the
lead investor or part of a syndicate, depending
on the size of the transaction. Certain
of the Fund’s investments may be
controlling interests. In non-controlling
investments, Black Diamond looks for key
negative controls, board representation,
or both. In particular, for investments
where the Fund is not in a controlling
position, Black Diamond will be focused
on the skills and track record of the controlling
investor(s).
Insurance companies by the very nature
of their industry are unique. Some key
aspects which differentiate insurance industry
from other traditional industries are:
Long tail and short
tail insurance liabilities
Unique rules and regulations
for distribution of earnings to shareholders
Requirement of state
license for underwriting business in each
state
Statutory accounting
and capital requirements
Balance sheet based
profit opportunity
Valuation
Drivers
Considering the unique nature of insurance
industry, we look at following key factors
in our investment consideration:
Quantitative factors
Underwriting profit – Pricing
and Combined ratio trends
Investment return-
ROE, ROA
Balance sheet strength-
Reserve and Leverage
Revenue and earnings
growth
Qualitative
factors
Quality of the book
of business (long term track record)
Quality of management
and leadership
Susceptibility to
unusual charges
Position in the pricing
cycle (P&C only)
Franchise value
Valuation
techniques
We use different valuation tools based on
the nature of the transaction. The list of
valuation approaches we consider are:
Comparable public
company analysis
Precedent M&A
transaction analysis for control premium
consideration
P/B versus ROE regression
Discounted cash flow
methods – FCF, EVA and Dividend
discount model
Despite the use of
quantitative analysis, valuation remains more
of a subjective art than an exact science.
The valuation techniques which vary with the
nature of the transaction are best used to
set a range of possible values, with a judgment
call of our experienced team ultimately necessary
to determine the best value.
Quality of management is one factor which
stands out during the decision process. We
value personal qualities such as integrity,
intelligence and motivation of senior management
and believe in partnering with visionary
and experienced management teams who are
looking for sound financial partners to help
grow their companies.
Black
Diamond Capital Partners • 515 Congress Avenue, Suite
2220,
Austin, Texas 78701 •
Tel: (512) 450-5000
