B.P. Marsh & Partners LON:BPM, the AIM-listed private equity shop is due to publish its annual report for the year ending 31st January 2023 next Tuesday (13th June).
The private equity and venture capital firm, founded in 1990, is a specialist capital provider to the financial service intermediary sector – a lender to lenders (well primarily insurance companies). Established by insurance broker and Lloyd’s underwriter, Brian Marsh, who still retains about 40% of the business, B.P. Marsh is a specialist investor with a track record in the insurance sector, which many see as the City’s jewel in the crown.
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The firm isn’t really a household name, but in the insurance district it’s a mover and shaker and since inception has invested in over 40 companies and on average grown its net asset value per share at a solid 9% year-on-year, come hurricanes, pandemics or acts of war and terror.
B.P. Marsh & Partners farming, not hunting
The company doesn’t just work the London market, but has global outreach, having built up its presence in North America and Australasia over the past five years. The company aims to invest in early-stage financial services companies – primarily insurance brokers, financial advisors and wealth managers – and help them grow quickly, through both economic support and helping the company expand its business through B.P. Marsh & Partners insurance industry network.
An example of how the firm operates is its investment is Kentro Capital, a London-based insurance industry investment group. B.P. Marsh initially took a 5% stake in the business (at the time known as Nexus Underwriting) for GBP1.5m in August 2014. Unlike a lot of its peers B.P. Marsh isn’t a pushy or flippy investor, preferring a patient and minority partnership; taking a more scenic route, where it can help support the management and grow the business it is investing in over the longer-term.
In Kentro’s case, B.P. Marsh supported the management’s organic and acquisitive growth strategy, gradually infusing the business with capital and building its position to 18.7% with the deployment of a further GBP13.6m. Kentro used the capital and additional bank financing to acquire 23 more businesses, growing from a gross underwriting premium of GBP55m at the point of B.P. Marsh’s initial investment, to pulling in premiums in excess of GBP500m this year and expanding from London to the US, Europe, Asia and Dubai, running a team of 350.
Eventually Kentro caught the attention of the big beasts, and Florida’s Brown & Brown Incorporated, one of the US’ biggest insurance brokers with over USD3bn in revenue, expressed an interest in Kentro. It was at this point that B.P. Marsh decided to cash its chips in, and in May exited Kentro for a cool GBP51.5m net.
Shareholder patience paid-back
The company subsequently announced that it was going to use its bounty from the Kentro sale to issue a special dividend of GBP1m, or 2.78p a share, giving 1.9% of the sale back to shareholders. Combined with an updated standard dividend of GBP2m a year for three years and a GBP6m share buyback, B.P. Marsh returned another 23.2% of the Kentro sale to its shareholders. All in, a quarter of the profits from the sale was given back shareholders.
In its last annual report in June 2022, B.P. Marsh reported a NAV of GBP166.6m, net of dividend, a 11.1% increase from 2021 with a 11.7% total return to shareholders during the year; this on the back of Covid-19. The company expects more this year, despite the financial turmoil of the last 12 months. In the period, the private equity firm made three profitable disposals: MB Prestige Holdings, Summa Insurance, and Mark Edwards Partners, with its position in Walsingham Motor Insurance exited in January 2022. The company invested in Denison and Partners, a Lloyd’s broker.
In February, B.P. Marsh said that NAV had increased to GBP179.8m by the end of July 2022 and it had lent its portfolio companies GBP2.8m in 2H22. The group has GBP12m in the bank and no debt. At the half-year point in 2022, the company had made GBP17.2m profit before tax.
In April, B.P. Marsh acquired 35% of the share capital of Verve Risk Services Limited, a London-based managing general agency for GBP1m with a mix of debt and equity. Founded in 2016, Verve specialises in professional and management liability business for the insurance industry in the US, Canada, Bermuda, Cayman Islands and Barbados.
Marsh said in a company document: “[Our] reputation is built on the people we partner with, and we seek to ensure that all our investments are a true partnership. We are comfortable with long-term investment, with a portfolio holding average of seven years, but having held some investments for 20 years. We do not insist on exit clauses to force through a sale of any business at a set date, preferring to work alongside management to identify the optimum sale and exit route.”
The company’s shares closed trading on 7th June at 348p and have ranged between 280p and 353p over 52-weeks. The company has offered a year-to-date return of 18.2% and a one-year return 18.2% also, giving the company a market capitalisation of GBP127.9m.B.P. Marsh is a slow burner, generous with its dividends and focussed on driving growth in its NAV. It does operate in a very specialist market, which is concentrated and lacks diversification. One big Hurricane Katrina-sized disaster hit can affect the entire industry and given climate change, natural disasters seem to be arriving with more regularity, notwithstanding the damage that people do to other people and property.
However, B.P. Marsh has a good track record and experienced management team that understand the insurance industry intimately. Investors in early-stage businesses, B.P. Marsh’s portfolio has a potential for growth.
We rate it as ‘one to watch’ and will be analysing its results next week closely.
