Big Mistake Made By PE Firms: Allowing a Newly Acquired Portfolio Company to Drive a Broker Decision

Caren Lee - Director, Private Equity and Portfolio Services

I have been working with Private Equity (PE) firms on their insurance related needs for over a decade and continue to be amazed at the costly error that is repeated in the middle market sector.  The mistake is allowing a newly acquired portfolio company (portco) to retain their current Health and Welfare (H&W) broker based on a “relationship” vs skill sets.    In making this choice, opportunities to reduce the percentage of spend tied to human capital are often overlooked.

Why does this happen- When we have challenged a decision to keep the current broker post close, the standard response from a PE firm is as follows:   We are streamlining/retooling various functions within the portco (finance, IT, human resources, operations, etc.) and causing the current staff angst. We need to give them a token win. The H&W program isn’t broken, they like their broker, there for a change isn’t needed at this time.  What they don’t seem to realize is that a short sighted brokerage decision can impact potential budget reductions, and allow for missed opportunities that include leadership development and work flow enhancement.

In keeping with the implicit goal of increasing value for investors, PE firms should make sure the broker/consultant they are working with has the following success factors:

  •  A proven track record providing human capital management, H&W consulting and plan administration for portfolio companies under PE control. The broker must understand the goals of PE and know that the PE firm is the ultimate customer
  •  A business structure that allows for the customized services, flexibility, and prompt decisions that are required when working with PE firms
  • The ability to take direction from the PE firm’s operations group to work with portfolio benefit and finance teams to implement programs that:
    • Satisfy compliance, legal and legislative obligations
    • Increase value of spend while providing appropriate coverage
    • Provide scalability and flexibility for possible sale or integration
    • Generate actionable insights on a company’s management
    • Deliver timely and meaningful financial reporting and forecasting
    • Increase employee engagement, retention, and attraction
    • Allow HR to focus on strategic vs tactical issues

If you want to work with an organization that can provide an integrated range of human capital and H&W services designed to maximize investor return, the Private Equity and Portfolio Services group at Craford is ready to be your valued business partner.  Call us today or simply send us an email for a free consultation. We look forward to speaking with you soon.  


About the Author:

Caren Lee has over 35 years of experience in the insurance industry, and she has spent the last 12 years primarily focused on diligence and consulting/brokerage services for PE firms and their portfolio companies.

Her current responsibilities include marketing and delivery of Craford’s integrated range of services that are specifically targeted for private equity firms and organizations with a portfolio business model. In addition to being the primary transactional contact, Caren is the internal quarterback who ensures that our seasoned staff continues to provide creative, timely and accurate results for customers in this space.