Fidelity National Financial Inc., the acquisitive provider of title insurance, financial processing software and services, and other products, is about to enter a new line of business: insurance claims management.
Fidelity announced Tuesday that it is buying Sedgwick CMS Holdings Inc. of Memphis for $635 million. It said it would use cash on hand and existing lines of credit to pay for the privately held Sedgwick, with a closing set for Jan. 31.
Sedgwick - which provides third-party administration programs for workers' compensation claims management, liability claims management, and disability claims management - said it expects 2005 revenue of nearly $400 million. Its operating unit, Sedgwick Claims Management Services Inc., has 400 corporate clients, including 25 of the Fortune 100 and 72 of the Fortune 500.
Daniel Kennedy Murphy, Fidelity's senior vice president of finance and investor relations, said the deal reflects "the continued evolution of FNF and the broadening out of the products and services that we offer."
Mr. Murphy said that Sedgwick would be folded into the holding company's structure as its fourth operating unit, and that it could become the basis for future expansion in the insurance claims management field.
"We are always looking at potential acquisitions," Mr. Murphy said. "I don't know if this would be any different from any other part of our company."
Nikolai Fisken, an analyst with the Little Rock investment bank Stephens Inc., said he expected Fidelity would find ways to make the deal financially successful, but he questioned whether the new business would have the same potential for cross-sales that might exist among the customers for Fidelity's title insurance, mortgage processing, and core-systems businesses.
"Under FNF leadership, there is some real earnings power that can be generated," Mr. Fisken said. "Strategically, I'm still trying to work it out."
By itself, Sedgwick could be a larger contributor to Fidelity's revenues than its existing specialty insurance business, a wholly owned unit that provides homeowners', flood, and other coverage and which had revenue of $248 million in the first nine months of the year.
Fidelity, of Jacksonville, Fla., burst on to the bank processing scene in 2003 when it bought Alltel Information Services from the telephone company Alltel Corp. of Little Rock, renaming it Fidelity Information Services. In 2005, Fidelity Information Services jumped to the No. 3 spot (from No. 11 in 2004) on American Banker's FinTech 100 list of technology vendors, largely on the strength of its continuing acquisitions.
The information services unit is poised for another growth surge, through a merger with the transaction processor Certegy Inc. of St. Petersburg, Fla. Certegy shareholders are scheduled to vote Jan. 26 on the deal, which would create a publicly traded company to be called Fidelity National Information Services Inc. and to be majority owned by Fidelity National Financial.
In October, Fidelity spun off 17.5% of its title insurance business, its largest unit, to form Fidelity National Title Group Inc.
Mr. Murphy said it was possible Fidelity could offer a public stake in Sedgwick to the market at some point.
"I would never say we would never do anything, but it's way too early for me to speculate," he said. He said the partial spinoffs of the title and technology units were ways of "attempting to maximize the value of those assets for our shareholders."
David A. North, Sedgwick's president and chief executive, said he believes the acquisition would benefit both Sedgwick and Fidelity.
"I think there definitely will be synergies" even beyond the two companies' insurance operations, he said. Mr. North said the company will continue to do business under the Sedgwick name.
Sedgwick, which is owned principally by the U.S. insurer Marsh & McLennan Cos. Inc. and the private equity firm Stone Point Capital LLC, put itself on the market in September; it retained Banc of America Securities LLC to act as its financial adviser to review strategic options.
The company took its current form when Marsh bought the North American claims processing operation of its British rival, Sedgwick Group PLC, in 1998. Stone Point became an investor in 1999, through its Trident II LP private equity fund.
