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Published in Finance

Reporter's Notebook: Hagerty’s $3B merger showcases Michigan’s insurance sector

BY Sunday, August 29, 2021 05:40pm

TRAVERSE CITY — The $3.1 billion deal to combine Hagerty Insurance Group LLC with Aldel Financial Inc. would create a publicly traded company that expects to maintain significant growth.

Hagerty has carved out a solid niche in the industry over more than three decades insuring collector and classic vehicles. The combined company will be renamed Hagerty Inc. and trade on the New York Stock Exchange after the deal closes.

COURTESY PHOTO

Hagerty matches the insurance coverage with a devotion to car culture and catering to automotive enthusiasts. That includes through a driver’s club, the ownership or sponsorship of more than 2,500 automotive events, and content delivered through multiple platforms that include a magazine and a YouTube channel that in the last year had more than 330 million views.

“Everything we do begins and ends with a love of the automobile (and) a passion for driving that we share with tens of millions of auto lifestyle enthusiasts,” CEO McKeel Hagerty said during a conference call to highlight the deal. “We are strategically building an automotive lifestyle brand.”

Hagerty insures more than 2 million classic and enthusiast vehicles globally. The company has generated a 29-percent compound annual growth rate in revenues in the last three years, including 2020 revenues of $500 million, and has a 90 percent customer retention rate.

An investor presentation on the deal estimates that Hagerty’s annual insurance and membership revenue will grow from a projected $626 million in 2021 to $1.62 billion in 2025. Earnings before interest, taxes, depreciation and amortization (EBITDA) is forecasted to grow from $74 million to $322 million in 2025.

The insurance side of the business alone could grow from $581 million this year to $1.5 billion in 2025, according to estimates in the investor presentation.

Gregg Dimkoff, a finance professor at Grand Valley State University’s Seidman College of Business who follows the industry, said Hagerty enjoys strong brand recognition as a niche insurer. Insurance agents and brokers seeking coverage for customers with a classic or collectible vehicle often turn first to Hagerty, Dimkoff said.

“There’s value in the name,” he said. “Everyone knows Hagerty.”

Dimkoff does consider the company’s growth projections “quite optimistic.” While significant for the two companies and their owners, the transaction “is nothing earth-shattering” for the broader insurance industry in Michigan.

Growing industry presence

Still, the expected growth — if it comes through — should add incrementally to the industry’s presence in Michigan, where Hagerty bases more than 750 of its 1,550-plus employees in Traverse City. The company also has operations in Ann Arbor.

Across the state, the insurance industry as of 2019 employed more than 94,000 people — compared to about 72,000 a decade earlier — who earned $6.56 billion in payroll compensation, according to a 2020 report from the New York City-based Insurance Information Institute.

The Insurance Alliance of Michigan trade association also notes how the state’s outlook for “hot jobs” forecasts the industry to grow by 1,300 jobs from 2020 to 2028 that pay $37,000 to $81,000 a year. Michigan is home to 65 property and casualty insurance companies, according to the Insurance Alliance of Michigan.

The insurance industry as of two years ago accounted for just shy of 3 percent of Michigan’s overall gross state product with $15 billion in output, said Paul Isely, associate dean at the GVSU Seidman College of Business. That makes insurance a “reasonably sized industry” in the state, Isely said.

“That’s not a small chunk of our output here in Michigan,” said Isely, citing data from the U.S. Bureau of Economic Analysis. “The industry as a whole is important to Michigan.”

Meanwhile, the insurance industry’s economic impact in the state isn’t readily apparent and doesn’t “immediately jump out,” Isely said.

“You’re not building a building, or you’re not creating a visible thing or filling up train cars with some things, so the output because it’s more service oriented makes it more invisible,” he said. “But it’s there, and it’s an important part of driving the economy. Everything needs insurance.”

‘Incredible market opportunity’

In forecasting strong growth ahead, Hagerty joins two other fast-growing industry players headquartered in West Michigan: Grand Rapids-based Acrisure LLC and High Street Insurance Partners Inc., also in Traverse City. Acrisure and High Street both ranked among the top acquirers of independent brokerages and agencies in the second quarter, according to Optis Partners LLC, a Chicago-based firm that tracks M&A in the insurance industry.

Acrisure, which just opened a new headquarters in downtown Grand Rapids, has closed 65 acquisitions so far this year and projects 2021 revenue of $3 billion. The company has closed more than 650 acquisitions in eight years and expects 2021 deals to exceed a five-year average of more than 100 annually.

Meanwhile, Hagerty expects to accelerate growth through the deal with Aldel Financial, an Itasca, Ill.-based special purpose acquisition company. Aldel’s partners bring to the deal “extensive expertise and strategic relationships” in the automotive, finance and insurance sectors, “which will be a key strategic advantage for Hagerty,” Hagerty said of the deal.

“We believe this transaction will help us accelerate Hagerty’s many growth opportunities and to build the best automotive enthusiast brand in the world, and to help us save driving and car culture for future generations,” he said.

Hagerty Group insures about 1.8 million vehicles in the U.S., which Hagerty called “impressive,” although far more opportunity awaits for the combined company. The U.S. has an estimated 69 million car enthusiasts and 43 million insurable, collectible vehicles that offer a $12 billion to $15 billion insurance premium market, he said. Hagerty presently holds a 4 percent market share for collectible, insurable vehicles.

“We have an incredible market opportunity before us,” said Hagerty, whose family started the company insuring wooden boats and moved into motor vehicles.

The family will retain a 52-percent stake in the business after closing.

Read 1413 times Last modified on Friday, 27 August 2021 13:45
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