K2

Private Equity Manager (GP)

Case study

About the company

K2 is one of the largest Managing General Agent (MGA) platforms in the USA, providing insurance carriers with distribution, underwriting and claims management services for specialty insurance lines. The company underwrites c.US$ 1.4bn of premiums across more than 24 different programmes.

Investment rationale

As one of the largest MGA platforms in the USA specialty insurance market, K2 is well-positioned to capitalise on the highly fragmented market opportunity.

K2 has delivered historically strong underwriting results that materially outperform the industry average, which is critical for retaining existing carrier relationships and expanding into new ones.

Strong value proposition across the specialty insurance spectrum from broker to carrier; the higher-returning lines they underwrite are difficult for traditional insurers to access profitably on their own.

Attractive financial profile characterised by high recurring revenues, strong free cash flow, and virtually no balance sheet risk.

Our relationship

Pantheon is a primary investor in a number of Lee Equity Partners funds and has also previously co-invested alongside the private equity manager.

Active management and value creation

Lee Equity Partners bolstered the management team with key senior hires to support the growth of the business. This included a new President, Chief Claims Officer, Chief Actuary and Financial Controller.

K2 completed 20 acquisitions, start-ups and “team lift-outs” in order to expand into new specialty lines and geographies.

The company drove carrier partner expansion to diversify its sources of capacity and helped to add new strategic distribution partnerships.

Lee Equity Partners worked with management to implement a number of operating best practices including:

• more formalised reporting,
• refinement of key performance indicators (KPIs) for the business, and
• leveraging centralised support services across the platform to achieve efficiencies.

Lee Equity Partners’ active management in tandem with management’s execution resulted in an annualised growth rate of 22% in revenues and 24% in EBITDA through a combination of organic growth and strategic M&A.

Value creation bridge

Exit

In May 2023, Warburg Pincus acquired K2 Insurance Services from Lee Equity Partners. The sale generated returns of 3.9x on cash and a 51.2% IRR.