Patriot Growth CEO: Upsized $500mn facility was vote of confidence in model and strategy

Patriot Growth Insurance Services will actively pursue larger acquisitions – including those with specialty capabilities – as it continues its evolution towards an integrated regional structure, supported by its recent oversubscribed $500mn debt financing, according to chairman and CEO Matt Gardner.

As previously reported, Patriot significantly expanded its debt facility in late November after securing $500mn of financing led by existing lender Golub Capital and jointly arranged by Antares Capital.

In an interview with The Insurer, Gardner said the five-year-old firm now has all the capital it needs to satisfy its M&A ambitions for the foreseeable future.

Although the executive would not comment on specific financials, sources said the firm – which is backed by GI Partners and Summit Partners – is expected to have ended 2023 at north of $500mn in run-rate revenues, including annualised figures for recent acquisitions.

Gardner said that to be able to double the size of the debt facility expansion from an initial target of $250mn was a strong endorsement of Patriot’s strategy and business model.

It came at a time when a number of rivals in the retail agency consolidator space had to resort to issuing additional equity to sponsors or onerous preferred share issuances to support their businesses in a tough and expensive fundraising environment.

“We have always been focused on the value of the equity in our business, and the upsize of our credit facility enables us to achieve our growth ambitions while protecting and growing that equity value.

“Our debt offering was very meaningfully oversubscribed, and I do think that is a vote of confidence in the marketplace for Patriot and its model, including the way we’ve structured the business and the caution and care we take around M&A,” he commented.

The raise included participants on the existing facility, but Patriot was also able to attract new lender relationships which will place it well to finance the business in the future.

And according to Gardner, it was the firm’s ability to differentiate itself in a number of key areas that led to the oversubscription and upsizing of the raise.

‘Top of the market’ organic growth

“Our organic growth has been and still is top of the market. We’ll finish this year [2023] in the neighbourhood of 12 percent, which is a pretty significant differentiator, because that enables us to manage our leverage and be more selective with M&A,” he explained.

He also highlighted Patriot’s M&A strategy, which has been centred around sourcing proprietary deals. Out of the approximately 30 deals it developed in 2023 – including those currently under letter of intent – only a couple will have come from sales processes as opposed to being proprietarily sourced.

Although he wouldn’t provide details of the terms of the debt financing, Gardner said Patriot had been able to secure it at the same incurrence or leverage ratio test as the existing facility.

“I think that’s very different than what our peers have experienced. We were actually working through 2023 to reduce our leverage ratio in anticipation of lower debt availability, but then the market responded very favourably.

“Our combination of really solid organic growth, proprietary M&A engine, thoughtful approach to integration, and our plans to further operationalise the business are what gave the lending community the confidence to step up in such a meaningful way,” said the executive.

Among the initiatives Patriot is currently undertaking is developing greater insight into its data, enabling more productive relationships with carriers and wholesalers and powering state-of-the-art customised and cost-effective solutions for Patriot’s clients.

It has also worked on creating a “really thoughtful plan” organising the business around operating regions.

“We’ve spent a lot of time talking about and developing a regional structure that enables us to take advantage of our size and scope while respecting our agencies’ autonomy and entrepreneurial spirit. This is a very natural and organic evolution for our business, and our agency partners, our employees, our investors and our lenders are all quite enthusiastic about it,” Gardner said.

M&A profile

With the upsized facility and headroom to support growth through M&A, Patriot is expected to shift its sights to target a slightly different profile of agency to acquire, in addition to the smaller firms that have until now driven its expansion.

“We’re going to be much more opportunistic in 2024 on larger deals,” Gardner revealed.

With its historic focus on proprietarily sourced deals, this will require a paradigm shift for the firm, with those targets in the $15mn to $25mn revenue size band typically more likely to be acquired in an adviser-run process.

“Those have not been our bread and butter to date, but for us to really achieve our ambitions we anticipate doing a few of those in geographies where we don’t currently have boots on the ground. We’re going to be much more intentional about that, and when we come across an opportunity like that, we’re going to be much more aggressive,” the executive explained.

Described as a slight shift rather than a pivot, the approach will also likely see a greater focus on acquiring specialty capabilities, albeit within the field of retail distribution rather than seeking opportunities in the wholesale or MGA space.

“We are spending a lot more time looking at specialty retail firms, those that either have particular and pronounced product expertise, or industry vertical expertise. Those are capabilities that can be leveraged across the Patriot platform,” said Gardner.