One of the first major insurance technology deals of the new year may signal what is expected to be a wave of consolidation across the industry.
Vista Equity Partners announced this week that it agreed to buy insurance technology provider Duck Creek Technologies Inc. in a take-private, all-cash transaction worth roughly $2.6 billion.
The announcement comes less than three years after Duck Creek went public with a market valuation of about $5 billion. Vista is set to pay $19 per share for the insurtech company with a go-shop period expiring Feb. 7 that allows Duck Creek to accept a better offer if one arises.
The go-shop period is an interesting opportunity for Duck Creek to potentially “maximize shareholder value,” said Kaenan Hertz, managing partner with Insurtech Advisors. But Hertz was unsure of what other private equity firm or large insurance entity was looking to enter the insurance software space.
“It does seem to be more that the current [Duck Creek] investors are using this as a good opportunity to cash out,” even though the company’s shares are down sharply from their all-time high, Hertz said in an interview.
The deal potentially carries a larger meaning for the wider insurtech space as well. Hertz expects that some insurtechs are about to enter a “really long cold winter” where some companies will catch a cold, some will get frostbite and others will “just die.”
“I do believe you will start to see consolidation,” Hertz said. “And consolidation will be insurtechs buying insurtechs.”
Duck Creek was among the biggest winners of the week. Its shares skyrocketed after the deal was announced and were up 46.88% for the week ending Jan. 13 as of early afternoon on Friday.
Power of partnership
Elsewhere, Goosehead Insurance Inc announced this week that it entered a strategic partnership with the National Association of Mortgage Brokers, the latest such arrangement where an insurtech has teamed up with a large distribution partner. Lemonade Inc. linked up with Chewy Inc. in the pet insurance space, and Root Inc. partnered with Carvana Co. to boost its auto insurance reach.
The new relationship between the National Association of Mortgage Brokers and Goosehead is “fantastic,” Hertz said, and it certainly would not hurt the insurtech company. But Hertz cautioned that if the relationship ends up costing them more than the amount of business brought in, it could result in a draw on their financial results.
Goosehead’s shares were up 14.93% as of early afternoon Jan. 13.
Meanwhile, the S&P 500 climbed 2.03% to 3,974.01 over the same time period, while the S&P 500 U.S. Insurance Index ticked down 0.49% to 611.03.
