Historically, private equity placements in the commercial surety marketplace have been challenging. Today, much of the new business flowing into the commercial surety market is coming from PE-owned, or soon to be owned, entities.
Sureties are still scrambling to become well-versed in underwriting this unique business model, so they remain competitive in today’s overall market. Lockton Surety Operations has seen an increased appetite for PE deals from many sureties—those outside of the top 10 surety providers.
Items that surety companies like to see in a PE deal that make them more appealing to bond include:
- “Low risk” type bond exposure
- Historically successful company prior to the PE buyout
- Management team stays intact after buyout to run the new company
- PE Firm has a balanced approach to funding the purchase (equal debt to capital contribution)
- Maintaining positive working capital and tangible equity after buyout occurs
- Strong business plan in place for the future of the new company
This is a competitive time in the commercial surety marketplace, which has led to the revival of the PE deal placement. Read my full white paper, which provides additional insight into topics such as “Lack of Indemnity from Parent Company,” “Balance Sheet of the Purchased Company,” and “Divestiture of Acquisitions.”