By James Thaler

Feb 24 - (The Insurer) - CRC Group is in talks to acquire Long Island-based ARC Excess & Surplus in a potential $500 million deal that would combine the two Stone Point Capital-backed wholesalers.

Sources with knowledge of the situation said the parties have been in talks for at least a number of weeks and that while a transaction is not imminent, it is ultimately expected to be consummated.

The discussions are not thought to be part of a competitive bidding process involving other potential strategic acquirers, with senior leaders at rival wholesale firms expecting a transaction between CRC and ARC to ultimately go through, given the common ownership by funds managed by private equity firm Stone Point.

ARC was founded in 1986 and is largely focused on providing management and professional liability wholesale solutions for SMEs. It is understood to have just above $1 billion of premium volume under management and slightly more than $100 million in revenue.

It is led by Chris Cavallaro, one the business’s three founders, as executive chair and Mike Cavallaro as president and CEO. The firm is thought to have more than 200 wholesale broking staff.

Based on ARC’s revenue, average industry margins and EBITDA multiples in recent transactions for distribution firms, a deal with CRC could value ARC at somewhere around $500 million.

The wholesaler’s revenues are understood to have contracted in 2023 as a result of softening in the public D&O segment, and it was not immediately clear how the business performed in 2024 as rate softening in that line accelerated.

It was also not immediately clear what impact CRC’s common ownership under funds managed by Stone Point would have on the deal’s ultimate valuation, or the impact softening D&O market conditions would have on the EBITDA multiple used to price the transaction.

A deal at around $500 million implies around a 30% margin on estimated gross revenues of around $100mn at ARC and a 15x multiple for EBITDA of around $30 million.

Other Stone Point investments in the distribution space include U.S. retail brokers Alliant and Higginbotham. In December 2024, the private equity firm also invested in Ardonagh in a deal that valued the UK-based intermediary at $14 billion.

Stone Point was one of the lead investors in the $15.5 billion deal to take CRC parent TIH private last May, as part of a spin-off from U.S. super-regional bank Truist Financial Corp.

The private equity consortium backing that deal also included Clayton, Dubilier & Rice, as well as Abu Dhabi sovereign wealth fund Mubadala Investment Company, with the transaction valuing TIH business at around 18x core EBITDA.

The group of investors originally took a 20% stake in TIH in 2023.

Almost immediately after the full spin-off was complete, TIH began entertaining offers for retail broking house McGriff Insurance Services, which led to a $7.75 billion sale to Marsh, which was announced in September and closed in November.

The Insurer was first to report the news in December that TIH was working on the divestiture of life wholesale broking firm Crump Life, which was confirmed by the company with its announcement in January that Crump Life would be sold to AmeriLife Group.

Those divestitures have now positioned CRC as an independent wholesaler, which the firm’s leadership has been touting in its public communications as well as pitches to potential hires and acquisition targets.

CRC has recently made a number of notable hires, including one of Brown & Riding’s top producers, Andrew Grim, as well as Daniela Mills from Lockton, as part of a renewed drive to hire senior wholesale talent.

In December, E&S Insurer was first to report that CRC had purchased SLB Insurance Group, its first acquisition since establishing its independence.

Florida-based SLB focuses on small to mid-market P&C, trucking and personal lines insurance. CRC said that the acquisition would nearly double the size of its binding operations in south Florida and enhance its capabilities in Louisiana.

At the beginning of this year, long-time CRC chief executive Dave Obeneaur took over as CEO of TIH, with John Howard becoming vice chair.

A deal between CRC and ARC would also continue the M&A momentum across the insurance distribution landscape, after an acceleration of large-scale deals over the last year or so, including Arthur J Gallagher’s $13.5 billion deal for AssuredPartners.

CRC’s wholesale rival Ryan Specialty has been especially active in the last two years, having acquired Innovisk Capital Partners, US Assure, Velocity Risk Underwriters and Ethos Specialty’s property and casualty business from Ascot, among others.

Howden also remains in deal talks for its long-expected entry into U.S. retail broking, with Risk Strategies parent Accession Risk Management Group among the parties with which it is currently engaged.

A spokesperson for ARC declined to comment and said that the firm does not comment on rumours in the media. CRC declined to comment. Stone Point did not immediately respond to a request for comment.