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Company Overview
Nodak Mutual Insurance Company is a successful mutual property and casualty insurance company located in Fargo, North Dakota. It is affiliated with the North Dakota Farm Bureau. Nodak and its insurance affiliates provide primarily personal lines, multi-peril crop and crop/hail insurance in the upper Midwest. Annual direct written premiums are approximately $180 million on surplus of approximately $145 million.
Situation
Nodak did not need capital to fund organic growth. It had made several small acquisitions, but management felt larger acquisitions would strain capital. However, growth through acquisitions was a key strategic objective of Nodak, and management believed that access to capital was critical to achieving this goal. Griffin presented at the Nodak 2012 board retreat on Nodak’s strategic alternatives. One of the conclusions of this presentation was that the laws of North Dakota were not conducive to capital formation by mutual insurance companies. In 2014, Griffin again presented at Nodak’s board retreat to discuss strategic options, including specifically enacting subscription rights legislation in North Dakota to permit mutual insurance companies to more efficiently raise capital. Nodak, with the assistance of Griffin, successfully secured the passage of subscription rights legislation in 2015. A unique feature of this legislation is that it gives policyholders the right to purchase stock or redeem their subscription rights for cash.
Solution
Nodak had to choose whether to convert fully to stock form or form a mutual holding company and conduct a minority offering to policyholders and the public. Griffin advised that a full conversion would yield too much capital to deploy in a reasonable amount of time and recommended formation of a mutual holding company and a minority stock offering. This path had the additional advantage of preserving mutuality. Nodak engaged Griffin to assist in in the formation of a mutual holding company and to conduct a minority stock offering by an intermediate holding company called NI Holdings. Griffin acted as financial advisor and best efforts underwriter in connection with the transaction.
Under the plan of mutual holding conversion adopted by Nodak, the company was required to be independently appraised and raise capital in an amount equal to 45% of the appraised value. The independent appraisal was $200 million and the 45% offering range was $76.5 million to $103.5 million, with a midpoint of $90 million. Griffin received $251 million in orders. The offering was closed at the top of the appraisal range of $103.5 million; 10,350,000 shares were issued to policyholders and the public at $10 per share. In addition, policyholders who elected to redeem their subscription rights rather than purchase stock received cash distributions totaling $5.7 million.
This transaction represents the first ever subscription rights conversion by a mutual holding company and the first conversion of any kind in which the mutual members could redeem their subscription rights for cash. The transaction closed on March 13, 2017, and commenced trading on Nasdaq on March 16, 2017 under the symbol NODK. Nodak is now poised to seize growth opportunities.
For more information on this transaction, contact Jeffrey P. Waldron, Senior Managing Director, at 610.205.6028.
