Marsh & McLennan Cos., the second-largest insurance broker, agreed to sell its Kroll security- consulting operation to a buyout firm for $1.13 billion to focus on its main business of matching insurance buyers and sellers.
Altegrity Inc., led by former Marsh & McLennan Chief Executive Officer Michael Cherkasky, will have about 11,000 employees in 30 countries with the completion of the all-cash transaction, which is expected by the end of September, the companies said in a statement today. Providence Equity Partners, owner of Altegrity, received financing from Goldman Sachs Group Inc. and Apollo Investment Corp.
The private-equity industry has exploited a rally in the debt markets to finance acquisitions, rebounding from a two-year drought in deal making. Buyout firms have announced transactions valued at $30.3 billion this year, more than five times in the year-earlier period, according to data compiled by Bloomberg.
“This was a logical target acquisition and as a buyer, we combined the best of both worlds as a strategic with synergies and as a financial buyer with the ability to arrange attractive financing,” Julie Richardson, a Providence managing director, said in an interview today.
Biggest Buyout Fund
Providence, based in the Rhode Island city of the same name, was founded in 1990 by Jonathan Nelson. The firm raised a $12 billion buyout fund, its biggest, in 2008 and invests in media and communications-related companies.
Marsh & McLennan CEO Brian Duperreault, who replaced Cherkasky in 2008, has cut jobs and acquired regional U.S. brokerages to improve profits at the flagship unit. New York- based Marsh & McLennan also owns consulting firms Oliver Wyman and Mercer. Cherkasky led Kroll from 2001 to 2004 before it was sold to Marsh & McLennan.
“This is a business that he knows,” said Meyer Shields, a Stifel Nicolaus & Co. analyst who covered Marsh & McLennan during Cherkasky’s tenure and currently recommends buying the broker’s stock. Marsh & McLennan “may have been able to get a higher price out of him than maybe other potential bidders, just because of his familiarity with the business.”
Marsh & McLennan fell 42 cents, or 2 percent, to $20.57 at 4:15 p.m. in New York Stock Exchange composite trading. The company was advised by Perella Weinberg Partners and Wachtell, Lipton, Rosen & Katz. Debevoise & Plimpton LLP was legal counsel to Altegrity and Providence.
“Our long-term strategy is to focus on the risk and insurance services and consulting businesses,” Duperreault said in the statement.
Kroll, purchased by Marsh & McLennan in 2004 for about $1.93 billion, conducts investigations to uncover fraud and locates misappropriated assets. The unit was hired by Kuwait in the 1990s to investigate Iraqi dictator Saddam Hussein’s financial network used to hide funds.
New York Settlement
Cherkasky was promoted to CEO of Marsh & McLennan in 2004 to negotiate a settlement to a fraud lawsuit brought by then-New York Attorney General Eliot Spitzer. The deal struck by Cherkasky cost Marsh & McLennan $850 million and stripped the firm of one of its revenue streams. The company lost business to Chicago-based Aon Corp., the biggest insurance brokerage, and Cherkasky was ousted by the Marsh & McLennan board.
“When we look at the track record at Kroll before Marsh came on the scene, it was actually a pretty impressive grower,” said Shields. Cherkasky “can legitimately say that when he ran it as a separate business in the past, he did so successfully.”
Duperreault has been selling parts of Kroll, the least profitable of the company’s divisions, and has written down the unit’s value by more than $800 million.
“Altegrity and Kroll will leverage their combined resources to develop new and innovative solutions for government and commercial clients across a global platform,” Cherkasky said in the statement.