KKR, the Caisse to acquire USI Insurance Services

TORONTO KKR & Co. and Caisse de Dépot et Placement du Québec agreed to buy Onex Corp.’s USI Insurance Services in a deal valued at about US$4.3 billion including debt.

KKR and the Caisse, Canada’s second-largest pension fund manager, will have equal ownership in the Valhalla, N.Y.-based insurance broker, according to a statement Friday. The acquirers said they’ve established a partnership to make core private equity investments, or deals for stable companies they can hold for longer than the typical three- to five-year period in leveraged buyouts.

Private equity firms have long favoured deals in insurance services, where capital expenditures and debt levels are typically low and cash flow is steady.

KKR and the Caisse outbid others including buyout firms Carlyle Group LP and CVC Capital Partners for USI, according to people with knowledge of the process. Blackstone Group LP agreed last month to buy human-resources and benefits-administration platforms from broker Aon Plc for as much as US$4.8 billion.

“USI operates in a resilient sector characterized by stable, longterm returns and serves small and medium-sized businesses, which are the cornerstone of the U.S. economy,” Christian Puscasiu, the Caisse’s co-head of private equity direct investments, said in the statement.

KKR’s new partnership with the Caisse to make longer-hold investments reflects a wave of similar strategies by peers seeking to benefit from holdings that grow steadily and produce stable cash. Blackstone struck its first such deal in January, acquiring musicrights company SESAC Holdings, and Carlyle and CVC also have funds to make core private equity investments. KKR co-founder Henry Kravis has lamented in the past that typical buyout fund structures don’t allow for longer ownership, calling Warren Buffett’s long-duration capabilities in Berkshire Hathaway Inc. “the perfect private equity model.”

Onex, Canada’s largest buyout firm, bought USI from a fund run by Goldman Sachs Group Inc. in 2012, in a transaction valued at US$2.3 billion. USI has since made more than 30 acquisitions to increase its network across the U.S., according to data compiled by Bloomberg. Onex and partners made a US$610 million equity investment in the initial deal, which is now valued at about US$2.3 billion, the firm said in a separate statement Friday.

KKR has a long history in the business too, leading an investor group that bought a predecessor to Willis Group Holdings Ltd. and then took the broker public in 2001.

Former Willis chief executive Joe Plumeri was hired by KKR as an adviser in 2013 to help find new deals.

USI operates in a resilient sector characterized by stable, longterm returns and serves small ... medium-sized businesses.