January 24, 2013
Interviewed by: David Snow
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Deal Story: Willis Corroon

When KKR acquired UK-based insurer Willis Corroon, the culture was set for a shakeup. Then earnings went off a cliff. But KKR ended up making a huge return on investment. Scott Nuttall, Head of Global Capital and Asset Management at KKR, describes in this Privcap Deal Story how KKR installed a bare-knuckled CEO from Trenton, New Jersey and quickly got the company back on track. Upon full exit, KKR achieved an annualized return of nearly 50 percent.

When KKR acquired UK-based insurer Willis Corroon, the culture was set for a shakeup. Then earnings went off a cliff. But KKR ended up making a huge return on investment. Scott Nuttall, Head of Global Capital and Asset Management at KKR, describes in this Privcap Deal Story how KKR installed a bare-knuckled CEO from Trenton, New Jersey and quickly got the company back on track. Upon full exit, KKR achieved an annualized return of nearly 50 percent.

Scott Nuttall, KKR: One of the deals that was a lot of fun to work on and saw its shares of up and down was a company called Willis Corroon that was an insurance broker that we bought. It was based in the UK. A business that had been around for 150 some-odd years. We saw an opportunity to change the culture. It’s a great business, a lot of recurring revenue. OK? So we liked the recurring revenue aspect of the business.

But their margins were meaningfully below their competitors. And their growth rate was meaningfully below the competitors. And as a result, the multiple was meaningfully below the competitors.

What we saw there was an opportunity to get inside, change the culture, shake things up a bit. Get them much more focused on operational discipline and top line growth. And that was the thesis going in, is there was a lot you could do with this franchise. It was the third largest insurance broker at the time. there’s Aon, Marsh & McLennan, Willis.

We made this investment company it was pretty sleep at the time. And the profitability dropped materially. When I say materially, EBITDA went from 200 million to 108 in the first year of ownership. And we were levered– at that point– at 12 times that the EBITDA.

These stories rarely follow a very simple path. And so at that point we determined that this was a much bigger job than we even thought. They really didn’t have expense discipline. And we decided to really shake things up.

We hired a US CEO who was from Trenton, New Jersey. A guy name Joe Plumeri who is an extraordinary manager and very aggressive in terms of his management of businesses. And so it was a risky move honestly, but we needed to shake up the culture.

So Joe went in, we got expense discipline right away. We had to remake the senior management team to some extent, but really repackaged a lot of the players that were there. And ultimately, Joe working with us and we all spent a lot of time in London– me included– we were able to take the company and transform it. Culturally, from a sales culture standpoint, expense culture and ultimately the EBITDA went from 108 to 750.

We went from a business that was bankrupt on paper to ultimately, we took it public. And we ended up making something on the order of 10 times our money. So we invested 300 million and turned it into three billion. But the reason the story has always been interesting from my standpoint and it was formative for me as an investor and somebody in this industry, is once you own it it’s not necessarily going to go great from day one. You’re going to have to figure out how to work through things. And as long as you build a capital structure that can sustain, frankly, the missteps you sometimes make, the bad management teams you sometimes choose.

If you’ve got the ability to actually manage yourself through that and get the right people in the right slots, and help impose the right operating disciplines, good things can happen over time. And so that’s what I point to as a good one that kind of started not so well, but ended up being great. So you got to stick with it.

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