CoverHound, a digital property and casualty insurance platform, is looking for investment bankers to explore a potential sale to a strategic, said Keith Moore, CEO.
The San Francisco-based company, which was founded in 2010, is considering two separate sales: one of CoverHound and one of CyberPolicy, a subsidiary founded in 2016 for its commercial efforts in cybersecurity. It has already received about 10 formal offers, including ones from major insurance carriers, Moore said.
Despite the severe stock market decline as a result of COVID-19, CoverHound expects to announce a potential transaction next quarter, Moore said. In fact, the chief executive expects both CoverHound and CyberPolicy could see higher valuations in light of the global pandemic.
CoverHound’s online platform gives consumers access to property and casualty insurance quotes, mostly in auto and homeowner’s insurance, from multiple carriers. It also has a portal that allows agents to engage with online shoppers who haven’t yet purchased a policy. CyberPolicy’s platform gives small business owners access to cyber products that it bundles with cybersecurity and cyber monitoring.
Moore is looking to connect with multiple advisers since expertise in the insurance and cybersecurity industries rarely overlaps. He is also looking for a team with understanding of small businesses and software-as-a-service companies.
CoverHound could prove especially attractive to large insurance brokers now that social distancing and mandated work-from-home policies are limiting their business, Moore said. With more people online, cyber threats are going to become more prevalent, he added.
CoverHound is profitable, though Moore declined to provide EBITDA or revenue numbers because he has already started to entertain buyout offers. CyberPolicy does not yet operate in the black, but it is “a few partnerships away” from hitting profitability, he added.
CoverHound has raised more than USD 112m in funding. No individual or investor has majority ownership. Investors include Chubb [NYSE:CB], Aflac [NYSE:AFL] and Hiscox [OTCMKTS:HCXLF], among others.
Although it could sell to a current investor, Moore thinks the upside would be larger for another type of buyer. The top 20 largest insurance brokers and agencies cannot efficiently sell the very small annual premiums, which is where CoverHound can provide greater efficiency, he said.
“Our best acquirers would be someone who has either access to a large quantity of customers that we address or someone that has relationships with multiple carriers, where we can facilitate those multiple carriers digitally,” Moore said. It is not considering a sale to a private equity firm, he added.
A similar deal in this space came in November 2019, when global insurance broker Aon [NYSE:AON] agreed to acquire CoverWallet, one of CoverHound’s competitors, for an undisclosed sum. Mergermarket later reported that CoverWallet sold for about USD 300m after a direct approach.
CyberPolicy could sell to a range of strategic buyers, including an insurance broker, software-as-a-service platform or a cybersecurity company, Moore said. The chief executive could also envision a minority stake sale to a strategic for CyberPolicy, he said.
Much of CoverHound’s USD 58m Series D funding from February 2019 has gone to research and development in CyberPolicy, which has helped to fuel rapid growth. In 2018, the business grew 150% year-over-year, and in 2019, it saw almost 70% year-over-year growth, Moore said.
“We fit a niche that all those companies have a gap in now,” he said. “We’re able to sell these $5,000 or less policies very efficiently without having to have an agent talk to a customer over the phone for two or three hours.”
The two businesses together employ about 130 workers. If CoverHound decides not to sell, an initial public offering could be on the table in 2021, when it will be “well past” its break-even point, Moore said. Although he believes the public markets have historically been good to the insurance world, he views CoverHound as a much better fit inside a large insurance broker due to synergies.
Wilson Sonsini Goodrich & Rosati and Mayer Brown serve as legal advisors, and CoverHound is searching for counsel embedded in the cybersecurity market. Ernst & Young provides accounting services.
by Rachel Stone in Charlottesville, Virginia