It took just 78 days for a deal involving billionaire J. Christopher Flowers to blow up.
Confie Seguros Holding II Co., an owner of auto-insurance brokerages that cater to Hispanic drivers with spotty credit, paid $100 million for another brokerage that had ties to Flowers — just weeks before that company’s financial situation deteriorated, leaving Confie with a worthless acquisition.
Deals go bad all the time, but this one crashed and burned with astonishing speed.
Confie is suing Flowers and his firm, which is a top stockholder and creditor of the seller, saying they withheld information and “participated in a race against time” to complete the transaction.
“We got a raw deal,” Confie’s lawyer, Michael Kasdin of Foley & Lardner LLP, said in an interview.
In April, Confie settled for $2.4 million, a fraction of the selling price, from the directors and officers who sold it the brokerage. Flowers and his firm are the lone holdouts.
A spokesman for Flowers’s firm said the company’s finances were fully disclosed before the deal and Confie’s lawsuit is a case of buyer’s remorse.
‘Without Merit’
“Confie’s allegations regarding the transaction are totally without merit,” the spokesman, Owen Blicksilver, said in an email. “The lawsuit is a desperate attempt to hold JC Flowers, which did not control the transaction, accountable for a business decision they now regret.”
Flowers, a former Goldman Sachs Group Inc. partner, is “fast-talking and profane,” with the ability to “read a balance sheet in less than 30 seconds and offer an articulate and well-reasoned judgment of it,” according to “Too Big to Fail,” Andrew Ross Sorkin’s 2009 account of the financial crisis. Flowers was busy throughout that time, trying unsuccessfully to buy stakes in Bear Stearns Cos., the ill-fated investment bank, and American International Group Inc., the insurance company that received a $182.3 billion bailout from U.S. taxpayers.
$916 Million Debt
The current dispute is made urgent by Confie’s $916 million in debt, much of which comes due in the next few months, including nearly $22 million owed to a company managed by Apollo Global Management LLC. Apollo declined to comment. Also at stake are the thousands of insured motorists in an underserved market who may struggle to find alternative coverage as a result of the tumult.
It’s up to U.S. District Court Judge Thomas Durkin in Chicago to untangle the dispute between Flowers and Confie. Durkin heard oral arguments in February on the defendants’ motion to dismiss the suit. He has yet to rule.
The transaction was far from straightforward. On June 30, 2015, Confie, owned by Boston-based Abry Partners LLC, bought the brokerage, MGA, from Affirmative Insurance Holdings Inc., or AIH. Flowers’s firm owned 48 percent of AIH and remains the company’s biggest secured lender.
$20 Million
Part of the deal was $20 million that Confie would pump into an AIH subsidiary, Affirmative Insurance Co., or AIC. The cash was needed to bolster AIC’s capital so it would avoid receivership by the Illinois insurance regulator, according to court documents. AIC was MGA’s only customer, so the payment would ensure Confie’s newest acquisition could stay in business.
The $20 million wasn’t enough. Less than three months after the deal was signed, the Illinois Department of Insurance placed AIC into receivership. A month after that, AIH filed for bankruptcy.
Now, Confie is facing its own debt hurdles. Cesar Soriano, Confie’s chief executive officer since August 2017, has cut leverage, but the company has a $655 million first-lien term loan due in November and a $261 million second-lien loan to be repaid in May. Last month, S&P Global Inc. cut Confie’s credit rating to CCC, meaning creditors are vulnerable to nonpayment. Soriano declined to comment.
‘Integration Inefficiencies’
Buying up brokerages has been Confie’s strategy since its inception in October 2007. It has purchased more than 100 firms, according to its website.
S&P analyst Steve Guijarro said Huntington Beach, California-based Confie started running into trouble when the buying binge created “integration inefficiencies.”
“They were acquiring just to acquire, less due diligence,” Guijarro said. “That’s part of what they got burned with.”
In July 2017, Confie sued Flowers because, they argued in court, he was a controlling AIH shareholder. Flowers’s attorneys denied that he was. AIH paid Flowers’s firm $3.1 million from the MGA acquisition, according to court documents.
Confie argued in court that there was a meeting at which AIH threatened to kill the deal if it didn’t get what it wanted. The company alleged that it was Flowers who made the demand. His lawyer denied that.
Said Kasdin, Confie’s attorney: “You can’t throw a bunch of holding companies between yourself and a bad actor and say, ‘It wasn’t me.”‘
Related:
- Nonstandard Auto Insurance Market Is Not For Everybody
- Affirmative Insurance Ordered into Liquidation
- Confie Seguros Acquires Affirmative’s Retail Agency Group
Topics Mergers & Acquisitions Auto Agencies Insurance Wholesale
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