Thomas H. Lee Partners Announces Sale of Sedgwick CMS

 

On April 20, 2010, Thomas H. Lee Equity Fund V (“Fund V”) announced a signed definitive agreement to sell Sedgwick Claims Management Services, Inc. (“Sedgwick” or the “Company”) to Stone Point Capital and Hellman & Friedman for an enterprise value of approximately $1.1 billion, representing approximately 10x 2009 EBITDA.  The transaction is expected to close during the second quarter of 2010, subject to customary closing conditions and the receipt of regulatory approvals.

 
Fund V expects to receive approximately $220 million in proceeds from this sale, compared to a carrying value at March 31, 2010 of $201 million.  When this is added to the $59 million which Fund V already received primarily from the sale of a minority stake in Sedgwick to United Healthcare in June 2008, Fund V is expected to earn approximately $280 million, or 2x invested capital of $137 million, representing an internal rate of return of approximately 20%.

 
Sedgwick represents another successful investment for Thomas H. Lee Partners with Fidelity National Financial, Inc. (NYSE:“FNF”), our equal partner in the transaction.  FNF is a publicly traded company with investments in the financial technology and transaction processing industries, and is our partner in the FIS (Fund V) and Ceridian (Fund VI) deals.    Fund V and FNF purchased Sedgwick in January 2006 for $630 million, or 11.7x EBITDA, employing leverage of only 5.6x EBITDA.   During our ownership period, THL and FNF were able to grow Sedgwick’s revenues from $396 million in 2005 to $703 million in 2009 and EBITDA from $54 million in 2005 to $112 million in 2009, representing compound annual growth rates of 15% and 20%, respectively.  This strong record of growth was accomplished by executing on several key initiatives:

1)      Capitalizing on Sedgwick’s leading market position and strong customer relationships to drive organic revenue growth, despite the recent difficult economic environment;

2)      Identifying and integrating two strategic acquisitions to expand Sedgwick’s product offerings, resulting in both sales growth and significant cost synergies; and

3)      Improving margins by approximately 250 bps through strong expense management, including the implementation of an attractive IT outsourcing arrangement with FIS, the Fund V portfolio company owned in partnership with FNF.