Sands Point PE sponsor Avesi Partners aiming to build $1bn+ premium MGU platform

Sands Point Risk’s private equity sponsor Avesi Partners has laid out its ambition to build a full-scale diversified MGU platform, setting its sights on $1bn in premium in the next three years fuelled by team hires and two to three acquisitions a year.

John Aiello – partner and COO at Stamford, Connecticut-based Avesi – is spearheading the Sands Point build-out alongside a team at Avesi Partners and the MGU’s founders Dennis Kearns, Pat Darragh and Dan Simnowitz.

In an interview with The Insurer, Aiello detailed the tie-up between Avesi and Sands Point and its ambitions to attract entrepreneurial underwriting talent to the platform while working collaboratively with them as “business builders”.

“What we're really focused on as a firm is partnering with entrepreneurs and founders,” he said.

Aiello said Avesi is “a business-building PE firm” that seeks to marry its team’s financial and business-building acumen with its founders and entrepreneurs to facilitate growth.

“We're working with entrepreneurs and founders really hand-in-hand, really focused on growth, and bringing that business and financial acumen to the table to help them grow their businesses,” he explained.

Sands Point has already been in the market for months and has written in the millions of dollars of premium.

Avesi’s differentiating factors

Most of Avesi’s portfolio businesses have founders that hold much larger stakes than is typical for private equity deals, while Aiello also noted that his firm tends not to use much leverage.

In outlining the criteria for investments, Aiello emphasised bringing aboard “great people” and the differentiating factor that founders and entrepreneurs will maintain significant equity in their business.

“It's not, ‘Hey, I'm going to buy 80, 90 percent of your business and I'm going to stick you in a corner with an employment contract,” he explained.

“It's, ‘You're going to be our partner. You're going to own equity in the Sands Point venture. We're going to help you build your business. We're going to give you autonomy so you can grow it,’” he said.

Aiello said it was important to create a platform where entrepreneurs and founders feel connected to the overarching organisation but still have a fair amount of autonomy, along with the confidence from having a significant backer behind them who can help them grow.

“We can combine all of those elements – great culture, fair degree of autonomy and great alignment on economics – so that the founders are not thinking about the first cheque, they're thinking about the second cheque, and that's the differentiator,” he argued.

Construction, builders’ risk, marine

Essentially all of the capital Avesi plans to put to work within the P&C segment will fall under the Sands Point umbrella, with the potential for there to be some overlap between Sands Point and investments the private equity firm might consider in the healthcare segment.

Sands Point’s initial launch has been oriented around using transactional liability as the MGU’s “base business”, though it now plans to leverage existing carrier and distribution relationships to move into adjacent segments – plus Avesi’s healthcare ties – “to create something special”.

“Those are slightly different markets, different carrier coverage, different broker coverage, but you can still garner a lot of benefits from carrier and broker relationships, claims processing and expertise,” Aiello noted.

He gave an example of potentially hiring underwriters to write a medical stop-loss product for small employers who are looking to self-insure, and then placing that risk in the reinsurance market.

“So the idea would be to create this all under the Sands Point umbrella, even if we have necessarily a healthcare division and a P&C division, if you will, but it would still be under the Sands Point umbrella,” he explained.

Among the insurance segments Aiello said the firm would look to target are builders’ risk, construction and marine.

“Things that are a little bit more esoteric, harder to price, harder to place, and [where we’re] bringing that expertise to our carrier partners, where we can allow our carrier partners to extend their risk into areas that maybe they're not necessarily scaled,” he commented.

“The [transactional liability] business is a good example of that,” he added, describing it as a segment with a “big [total addressable market]” that nonetheless remains niche and in need of expertise.

“We’re partners”

Aiello said the conversations with underwriting talent have been geared towards those who might feel “trapped” within their firms, and have found the Sands Point message of entrepreneurship refreshing.

“The biggest complaint I've heard from those talented people is they're trapped in an organisation where they feel like they're stymied with their creativity and their ambitions can't be fulfilled,” he noted.

“Because they're in a big institution, or their partners are treating them like an employee, as opposed to treating them like an owner,” he continued.

“And at Sands Point, one of the things that Dennis [Kearns] and I talked about early on was, ‘You guys are owners of this business. We're partners. We're not your investors or your backers – we’re your partners.’”

Smaller acquisitions eyed

Amid a highly competitive market for MGA acquisitions, Aiello expressed confidence that Avesi and Sands Point will find deals that fit their strategy. He added that they will likely eschew deals at the top end of the market and focus on “smaller processes” and “proprietary opportunities”.

“I think it's a question of looking at spaces where others aren't,” he commented.

“We don't need to deploy a ton of capital. We could be judicious with our capital, so we can look for the smaller opportunities,” he continued, saying that in dollar terms, Sands Point would look to acquire businesses with valuations from anywhere from $5mn to $50mn.

“We like to be a first or early mover,” he added, drawing comparisons to the success Avesi has had in the healthcare segment in identifying specific niches that were less on the radar of other potential acquirers.

“When not many people are there, we try to go to sectors before they become overrun by private equity,” he explained.

“I think you could do that by starting small and being nimble, and that allows you to escape some of the frumpy multiples you'll see at the top end of the market.”

Realistic about valuations

Still, Aiello and his team are realistic about valuations and they expect to “pay a fair price for a business”.

“You should never expect a steal. And in fact, if your partners are continuing with you, the last thing you want to do is leave them with a bad taste in their mouth. So it's really important that you transact on good market terms,” he added.

Aiello said Avesi and Sands Point have been actively engaged with a number of MGA M&A processes, along with being in discussions with potential underwriting teams they could look to bring aboard.

“We've done all the above,” he said. “We've been looking at some processes, we have some bilateral talks going on with another opportunity, and we're cautiously talking to certain teams that want to come over,” he explained.

“It's a little bit of a marriage of the idea and the opportunity with the people,” he explained.

“People understand what their business is worth and we will never insult their intelligence by suggesting otherwise,” he explained.

Aiello stressed that the proprietary opportunities “allow you to engage with a business owner and create a theme, create a strategy, create a vision [and] align on that without having to worry about the deal ultimately getting shopped“.

“[That] allows us to buy well, and allows us to be more efficient with our time and more strategic with the growth plan going forward,” he said.

Ambition to be $1bn-premium business in “three-ish” years

Avesi has currently earmarked $70mn for investment into Sands Point from its $875mn first fund, launched in 2021, and could potentially explore investing more money into the business.

It also announced earlier this week that it has raised $1.35bn for its second fund.

The goal is to make Sands Point a $1bn-premium business.

“And I think we can achieve that in the next three-ish years,” he said.

Aiello said Avesi and Sands Point will reach that goal as long as it maintains its focus on “quality and culture”.

“Our goal on the enterprise value is to just to create a multi-hundred-million dollar enterprise value business. And we could do that. And if we could do that in a measured manner without sacrificing quality, that's the route we’ll go,” he concluded.