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Illinois Casualty Company was a successful mutual property and casualty insurance company located in Rock Island, Illinois, focused exclusively on providing insurance to the food and beverage industry. For the year ending December 31, 2016, Illinois Casualty had direct written premiums of approximately $51 million and surplus of approximately $30 million.
Situation
Illinois Casualty believed it had a substantial opportunity to grow organically both in its existing six-state Midwestern market as well as through geographic expansion. Management of Illinois Casualty knew it had the capacity to raise meaningful capital through a mutual-to-stock conversion under the Illinois subscription rights demutualization law, but management also was aware that many mutual insurance companies that had converted to stock form had been sold. Illinois Casualty wanted to maintain its independence.
Solution
Griffin proposed a solution to Illinois Casualty that would enable it to raise the needed capital and still maintain control. Griffin proposed a typical subscription rights conversion in which stock was offered and sold to policyholders, an employee stock ownership plan, and directors, officers and employees. But then, rather than sell all remaining stock to the public, which injects the risk of attracting activist investors, Griffin proposed that a portion of the remaining shares be sold to investors who would agree to sign a “standstill agreement.” Griffin helped the company identify the investors and negotiate the provisions of the standstill agreement, which was in place prior to the commencement of the offering. Under the standstill agreement, these so-called standby investors agreed not to buy or sell any shares for three years, and for the ensuing four years, they could sell stock, but only if they first offered their stock back to the company. This gives the company or its ESOP the ability to accrete their ownership position and thus retain control.
Griffin acted as financial advisor and best efforts underwriter in connection with the transaction. Under the plan of conversion adopted by Illinois Casualty, the company was required to be independently appraised. The independent appraisal was $32 million and the appraisal range was $27.2 million to $36.8 million. Griffin received $109 million in orders. The offering was closed at $35 million and $14 million of the stock was placed with three standby investors who signed the standstill agreement. This transaction represents the first ever subscription rights conversion in which the standby investor structure was used to insure control remained in friendly hands. The transaction closed on March 24, 2017, and commenced trading on Nasdaq on March 28, 2017 under the symbol ICCH. Illinois Casualty now has the capital it needs to fund organic growth and the time it needs to implement its strategy.
For more information on this transaction, contact Jeffrey P. Waldron, Senior Managing Director, at 610.205.6028.
