Seeking out small insurance firms
By Sherry Slater | The Journal Gazette
Sometimes the biggest business opportunities are created by taking a successful formula and thinking smaller.
That's what Matt Sackett and Tim Wiggins did when they founded DOXA Insurance Holdings in 2016.
The local men were working for large insurance companies, each responsible for finding and evaluating large specialty insurance brokerages for possible acquisition. Inspiration struck a little over three years ago.
Sackett, DOXA's chief executive officer, realized that smaller specialty brokerages, the ones Sackett and Wiggins' employers deemed too small to bother with, could generate a handsome return for somebody willing to buy enough firms to create economies of scale.
Of about 1,000 specialty insurance firms nationwide, an estimated 75 percent fall in DOXA's sweet spot – raking in less than $75 million a year in sales.
As DOXA ends its second full year in business, the local holding company has acquired one firm with $24 million in annual sales and has multiple other deals progressing through the pipeline. Two acquisitions expected to close by the end of this year represent more than $40 million in total sales.
“It takes awhile to develop relationships with those who own the businesses,” Wiggins explained.
Their growth projections call for DOXA to hit $50 million in value by year five and $125 million by year seven. At the current rate, they will hit $64 million in valuation – based on annual sales of the acquisitions – after just 21/2 years in business.
Sackett and Wiggins, DOXA's chief operations officer, believe in the concept so strongly that they left jobs providing generous salaries and benefits to found a company that pays them about 40 percent less during the startup phase.
“It felt like the right time,” Wiggins said, “to do the next phase of our lives.”
The founders draw paychecks from the first round of capital raised to launch the firm. Those local investors, who number about 50, also bring a wealth of business experience to the table.
They include Gabe Shaheen, former president and CEO of Lincoln Re; Tom Ellis, private equity investor; Chris Popp, executive vice president of Aunt Millie's Bakeries Inc.; and Tim Alford, retired senior vice president of Lincoln National Corp.
Kevin Wall, who joined the company last year as the chief financial officer, is a certified public accountant.
DOXA's founders say buying and consolidating insurance operations is harder than it sounds.
Managing general agents – the operations DOXA targets for acquisition – sell insurance policies that fall under more than 2,000 commercial property and casualty classifications.
American Specialty in Roanoke and K&K, which are well-known in this area, are examples of larger managing general agents.
The business is extremely specialized. Each operation writes insurance policies for a specific type of event. Think football stadiums and the companies that demolish those stadiums after they become obsolete. Think companies that clean up hazardous waste sites.
Each office has its own underwriting specialist who estimates the risk involved in each venture, determines coverage needs and calculates how much insurance premiums should be. After setting the terms, the managing general agent office offers the policy to an insurance company, such as Travelers, Berkley, CNA and one or more Berkshire Hathaway companies.
Those companies issue the actual insurance policies and carry the risk.
Promont Insurance Advisors, DOXA's first acquisition, specializes in home health care, gas stations and startup nondenominational churches. Sackett and Wiggins are purposely assembling a holding company that doesn't have any overlap in those specialties.
“What we're doing is so unique a niche,” Sackett said.
Their insurance backgrounds are crucial for evaluating small firms' potential and persuading owners to sell. In many cases, the firms are run by one main agent who employs a support staff. That person typically wants to make sure staff members will be taken care of after the sale.
Squeezing savings from consolidation relies on eliminating duplicated positions, so a few jobs are lost. But each firm also includes an expertise too valuable to lose, Sackett said.
He acknowledged that startups can't guarantee they'll make money. But, he said, he feels good about the progress they've made.
It's a good thing, too. A large percentage of Sackett and Wiggins' personal wealth is tied up in DOXA, which means “praise” in Greek.
“And,” Sackett said, “we'd do it again.”
Sackett and Wiggins forged their friendship as swim dads. They have children on the Southwest Allen Community swim team.
The wait between events allowed Sackett, a father of four, and Wiggins, a father of five, to chat about backstrokes and business.
Sackett, 45, has been in the insurance industry for 23 years. His previous employers include K&K Insurance Group, a subsidiary of Aon plc. Wiggins, 48, has spent 24 years in insurance. He most recently worked for Medical Protective, a Berkshire Hathaway company.
Neither man has a bad word to say about their former employers. They simply felt called to strike out on their own.
The seeds of entrepreneurship were sown early.
Sackett began mowing neighbors' lawns at age 12 and said he internalized a direct relationship between how much effort you expend and how much money you make.
The experience also taught him to place a value on his work.
Wiggins' dad would farm him out to neighbors who needed someone to do odd jobs – stack wood, pull nails, paint garages and mow lawns.
Starting about age 13, Wiggins would bound down the stairs on summer mornings to check the list his dad would leave for him.
Sackett likes how he and Wiggins work through problems. When they approach an issue from different directions, they're able to debate it and find a compromise.
“I think we get to the best point quickly,” Sackett said. “So far, it hasn't let us down.”