Hippo sells First Connect majority stake to Centana-led group for up to $60mn

Hippo has sold a majority stake in its digital distribution platform First Connect to a group of investors led by Centana Growth Partners in a $60mn deal.

The transaction was completed on 29 October, and saw a group led by Palo Alto, California-based venture capital firm Centana pay Hippo $48mn up front to acquire a stake of just over 80 percent in First Connect.

Centana and the other investors will pay Hippo a further $12mn dependent on First Connect’s achievement of specific performance targets.

With the deal completed, Aviad Pinkovezky has moved up from his former role as president of First Connect to CEO.

First Connect, which was formed by Hippo CEO Rick McCathron in 2012, is a digital platform that provides independent agents with access to insurers and MGAs in the US.

The company was acquired by Hippo in 2020 for around $25mn.

Talking to this publication, McCathron said First Connect “had become an incredibly successful stand-alone business” within the overall Hippo organisation.

But the executive said it was the right time for First Connect to be spun out “with a great partner like Centana”, a move that would allow the distribution platform to grow without any constraints that Hippo may put on it.

McCathron explained: “First Connect was not our core business [and] we obviously have our own business objectives at Hippo to focus on.”

First Connect, McCathron said, has “just grown massively, so it was the right time to monetise the transaction”.

Hippo and First Connect remain close

“We will continue to be a very close partner of First Connect,” said McCathron.

“We'll continue to have a commercial relationship, and we will continue to be a minority owner. So it's really a win, win, win.

“It’s a win for Aviad and the First Connect team. It's a win for Centana because they believe strongly in the asset, and it's a win for us to monetise and to continue to partner.”

While Centana has acquired the majority stake in First Connect, Pinkovezky said the strong ties with Hippo will remain.

“Hippo is going to be a shareholder, but a minority instead of an absolute majority, it’s going to be a carrier partner, and also an agency customer,” the newly appointed First Connect CEO said.

McCathron will hold a seat on First Connect’s board.

The Hippo CEO praised First Connect’s newly installed CEO.

“Aviad was Hippo non-founder employee number one,” said McCathron.

“I hand-picked Aviad because I was confident that, with his product and technology experience, he could build something meaningful. And I’ve got to tell you, it was the right decision, so I'm excited to continue to serve on First Connect’s board and continue to partner with Aviad,” McCathron added.

Different life stages

Pinkovezky said another reason for the majority stake sale is that First Connect and Hippo are at different stages of their life cycle.

“Hippo is a publicly traded company that is at scale and is on its way to become profitable by the end of this year,” he detailed.

“That is great – that is what Hippo should be about at its current stage of life, and it’s what the board is expecting of Rick and the Hippo management.

“On the flip side, First Connect is a much earlier stage company if you compare it to Hippo. Much, much earlier. [First Connect] is seeing tremendous, very strong product, market fit, and growth.

“When you have something like that with favourable unit economics, you actually want to invest in growth.”

Pinkovezky said the best way to unlock and maximise the shareholder value for both Hippo and First Connect was to separate the two entities. That would allow Hippo to focus on achieving profitability without having to invest in the non-core business of First Connect.

By being spun off and welcoming a new majority owner in Centana, Pinkovezky said First Connect will be able to focus on growth, and double-down its product market fit efforts without affecting Hippo’s push for profitability.

Build-out

Along with paying up to $60mn to acquire the majority stake from Hippo, Centana is injecting capital into First Connect to support its further build out.

Pinkovezky said First Connect will use some of that new capital for growth-related initiatives, including marketing, sales, customer support, account management and the like.

He stressed that First Connect will use the funds to “double-down on our technology and product which creates a very differentiated user experience”.

That existing technology and product portfolio includes Carrier Store, which provides an easy-to-use and streamlined experience based on where and what an agent is licensed to sell. The platform also simplifies the agent onboarding process.

Its Appetite Finder product allows agents to answer just a few questions on behalf of clients and be provided a list of the best-suited carriers.

And more recently, First Connect deployed AI technology in order to improve the agent onboarding experience.

Those offerings have resulted in around 115 underwriting partners now being on the First Connect platform.