Sedgwick CMS Holdings Inc., an insurance claims manager partly owned by Fidelity National Financial Inc., has a deal to buy a competitor, Security Capital Corp. of Greenwich, Conn.
The $191.5 million cash deal, announced Tuesday, is expected to close late in the third quarter or early in the fourth. It would be the Memphis company's second acquisition this year. A Sedgwick executive said the purchase would broaden the services it provides to the large employers it serves and would accelerate its growth in the fragmented claims administration market.
Buying Security Capital would move Sedgwick closer to the goal its chairman, William P. Foley 2d, who is also Fidelity's chairman and chief executive set last month: to build Sedgwick's revenue base to $1 billion over the next 18 to 24 months.
Fidelity, of Jacksonville, Fla., acquired a 40% stake in Sedgwick in January. Two private equity companies, Thomas H. Lee Partners LP and Evercore Capital Partners, bought the rest.
Sedgwick generated $398 million of revenue last year, and it said Security Capital's claims management operation, which does business as CompManagement Inc., generated $145 million.
Last month Sedgwick acquired VPA Inc., a Calabasas, Calif., company that, like Sedgwick, manages health-benefit programs for large employers. VPA generated about $20 million of revenue last year.
"Our strategy is following the FNF model very closely," said James B. Wiertelak, an executive vice president and the chief operating officer at Sedgwick. Fidelity became the nation's largest title insurer by geographic expansion and by purchasing smaller rivals.
Sedgwick grew organically by about 20% a year for the five years before its acquisition by Fidelity, Mr. Wiertelak said. "This is going to accelerate that growth."
Neither company manages consumer-directed health care accounts, such as health savings accounts. In January, Fiserv Inc. of Brookfield, Wis., bought CareGain Inc., an East Windsor, N.J., provider of automated administration of consumer health claims, including those paid from flexible spending and health reimbursement accounts.
In a number of banking markets, Fiserv competes directly with Fidelity National Information Services Inc., a technology firm majority owned by Fidelity National Financial. In April the two Fidelity companies announced plans for the insurer to sell its stake in the technology firm.
Daniel K. Murphy, the insurer's senior vice president of finance and investor relations, said it might consider a spinoff of Sedgwick, using a process similar to the one being used to sell the stake in the technology firm.
However, he also said it would be premature to use Security Capital's status as a public company to spin off Sedgwick at this point. In January the technology company merged with the publicly traded payment processor Certegy Inc. of St. Petersburg, Fla.
"When we get to a billion, as a round number, then we'll figure out how to unlock the value for the shareholders," Mr. Murphy said.
Donald Light, a senior analyst in the insurance group of the Boston research and consulting firm Celent LLC, said Fidelity National Financial's strategy with Sedgwick makes sense. "There are a few national scale players, and a lot of regional and very small players," Mr. Light said. "There is an opportunity, probably, for a rollup strategy among the smaller players."
