The Baldwin Group

A compelling company in an excellent business.

Founded: 2011

Public IPO Price (2019): $14/sh

Current Price: $33.35

Market Cap: $3.92

The story for The Baldwin Group (now referred to as “Baldwin” or “BWIN”) in the near term is that of delevering, reducing total earnouts paid to acquisition partners with a subsequent impact to the free cash flow profile of the overall business. The long term story is that of a compounding business in an industry that is at the heart of every developed economy: Insurance.

The beauty of the insurance brokerage business is that it is essentially a royalty on insurance premiums. A large portion of insurance brokerage business is paid via commissions on premiums, if premiums rise over time, so do commissions. Certain aspects of the brokerage business, specifically for the larger more complex clientele, is paid in the form of a fee for service with no commissions associated to the value of the insurance premiums.

My view on why Baldwin is a long is simple: insurance brokerages are phenomenal businesses, delevering following an acquisition spree, earnout pressure on free cash flow being removed, belief in management, and my own personal view that the insurance markets remain hard over the next few years, albeit potential for softening in certain lines. I am long and will add to this name on any weakness, if they are able to use the same playbook as the other insurance brokers then it is my opinion that the business continues to compound.

Let’s dive into the operating groups for The Baldwin Group:

1. Insurance Solutions (IAS)

   1. Commercial Risk Management

      1. Property & Casualty

   2. Employee Benefits

      1. Healthcare

      2. Retirement

   3. Private Risk Management Solutions

      1. Businesses and HNWI

2. Underwriting, Capacity & Technology Solutions (UCTS) – consists of three distinct businesses.

   1. Specialty wholesale broker business

      1. Provides individuals, professions, and niche industry businesses access to exclusive specialty insurance markets, capabilities and programs requiring complex underwriting and placement.

   2. MGA of the Future Platform

      1. Creates proprietary, technology-enabled insurance products.

      2. Insurance products are then distributed internally by Risk Advisors across other operating groups or via distribution partners.

         1. Example of a distribution channel is the embedded renters insurance product sold at point of lease via integrations with property management software providers

      3. MGA of the Future platform represents approx. 90% of UCTS’ revenue in 2023.

      4. Heavy investment in expansion of the MGA of Future product suite

         1. Comprises 12 products across commercial and personal lines.

            1. New product launches in 2023: HNW Homeowners, flood, and commercial property

   3. Juniper Re

      1. Q3 2023 stand up.

      2. Reinsurance brokerage business

      3. Many from Willis Re. Overlap in culture and style. View this as positive.

3. Mainstreet Insurance Solutions (MIS)

   1. Personal, commercial, life & health solutions to individuals and businesses

   2. Distribution channels

      1. Home builders, realtors, mortgage originators/lenders, master planned communities, and various other COIs.

   3. Westwood Insurance purchase supported MIS progression, Westwood was embedded in many of the top US home builders.

   4. MIS offers consultation for govt assistance programs and solutions

      1. Medicare, Medicaid, and ACA to seniors and eligible individuals through independent agents

All of these segments are growing organic revenue at double digits YoY.

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Financials: