Sara Phillips is the Head of Strategic Partnerships & Investments, Innovation Strategy at Great American Insurance Group, a P&C insurance carrier with expertise in specialty commercial lines of business. Sara was interviewed by Michael Fiedel, a Managing Director at InsurTech Ohio and Co-Founder at PolicyFly, Inc.
From a carrier perspective, what drives the strategy around acquisition?
“As we think about key strategic initiatives, the strategy is really built by divisions or at the enterprise level, and M&A (Mergers and Acquisitions) is an execution channel to implement the strategy, not a strategy in and of itself. Acquisitions can help us solve for things like talent shortages, via acqui-hire opportunities, pull forward organic growth, grant access to net new businesses or geographies and solve other key needs. In terms of growth, inorganic opportunities are honestly a very compelling path to get there, assuming the right properties are available in the market.”
Is there a particular acquisition strategy that Great American leans toward, or is it fairly diverse?
“It's diverse. If you look across Great American’s acquisitions, we've acquired large businesses such as National Interstate in Cleveland or Summit, our worker's comp division in the Southeast. These companies run as independent divisions where the business president has the autonomy to make the right decisions for their business. As they work within the enterprise, they have the ability, but not the requirement, to access other parts of the company, which we call Shared Services. This creates an attractive environment for entrepreneurs and strong operators to access greater benefits as part of the Great American portfolio.
In general, the best approach to an acquisition is to consider if it’s a good business you want to be in long term. Why do you want to own this business? For smaller acquisitions, or when taking a programmatic approach to M&A, consider how it could augment a specific division or create a competitive advantage. Opportunities that lie within the technology space are interesting to incumbents for distribution, data, analytics, claims, and other areas that benefit from better technology.”
On an annual basis, what percentage of acquisitions push the envelope of what Great American is and does?
“The ability to look ahead and anticipate how industry or landscape changes will impact our core business is critical. Our acquisition of Verikai is a nod toward the importance of data in today’s market for better underwriting outcomes. Most incumbents are not strong in using existing or new data in a way that drives business outcomes, but with the expertise of a company like Verikai, we are excited to see how its capabilities help strengthen our existing and build new businesses. Overall, the goal is to place smart bets to ensure industry evolution in the way insurance is underwritten and distributed.”
How long does the courting process take, and how competitive does it get with these acquisitions?
“I would say the courting process can range. Some of these businesses we have been talking to for years may have an owner that has toyed with the idea of selling their business, but for them, is it a generational planning exercise? Is it pinging the market for interest and trying to get information on what the valuation could be, and then deciding if it's compelling enough? Or are they actively looking for a sale? Informally, the courting process begins years in advance because for a strategic partner or a close competitor, we always want to be out there with the intent to be forward about our interests in a certain company and why we think we would be a great home for them from a formal perspective.
When a deal comes to us, it's through an investment banker. We're just part of the process. The bankers run a deal where they say, ‘Hey, this property is for sale. Are you interested? Let's go under our NDA’. Then they've got very tight timelines in terms of indications of interest due on this day or looking to close the transaction by the end of the year. The larger the company, the faster things move because there's a risk of the deal or word of the deal getting out and there being employee attrition. The goal is to keep it very short, but typically the integration is the long part.”
How diverse are the companies being acquired?
“A company we looked at recently had not done a round of funding, but was profitable. I would put them in the startup category. Not being venture-backed, they were trickier to peg, but I would say probably a Series B company. From the perspective of size, I'd say we're agnostic. If it's a good deal, then it's a good deal. We do have a track record of larger acquisitions in terms of acquiring divisions. The total consideration for divisional acquisitions is public information. Some of those have been $450 million and above for smaller acquisitions. There's a range, and operational maturity is more important than how long they've been around. As we think about working in a highly regulated environment, operational maturity is important depending on the role that they'll play in the organization.”
For those who might be interested in joining an acquisition team, what types of experience and passion do you feel is required to be successful?
“The foundational skill sets are financial modeling, understanding how to read financial statements and having a passion for business. You have to really enjoy the art of a deal, so it's not necessarily closing deals. We look at a lot of deals that we don't do. An interest in learning about stories of founders and companies, trying to understand quantitatively and qualitatively how the company operates is fascinating to me. Some people feel that's like licking sandpaper, but for me, I find it so incredibly interesting. That's probably a good start.”