Markel Corp., one of the largest specialty insurance companies in the U.S. with its headquarters in Richmond, has added to its investment portfolio a Texas-based manufacturer in a deal valued at less than $50 million.
Panel Specialists — which makes walls, furniture and other products for property managers, architects and builders – has around 175 employees during peak months. The company has revenue of $30 million, according to Michael Mendelson, a senior vice president at Anderson Strudwick who helped assemble the deal.
One of Panel Specialists’ owners was in his 80s, and the other two are in their sixties, and they were ready to move on to other things, Mendelson said. Markel will leave the current management in place.
Mendelson said he and fellow investment bankers worked for about six months assembling the deal, and brought it to Tom Gayner at Markel, who found it to his liking.
“They want to find good companies that have established cash flow operations that can continue to grow, like Berkshire Hathaway does, and ring the register year and year out,” Mendelson said.
Mendelson also said that one of Markel’s guiding principles is to find businesses with capable management. He said Markel will provide oversight but doesn’t want to have to run a new company, especially outside its main area of insurance.
Markel is publicly traded on the New York Stock Exchange, but instead of paying stock holders a cut of the profits every year, the company invests that income. Some of those investments are shares of other publicly traded companies.
And in 2005 Markel spun out Markel Ventures to invest in smaller, non-publicly traded companies. That year Markel Ventures bought AMF Bakery Systems. Markel Ventures also owns Parkland Ventures, which owns mobile home parks around the country. The company does not allocate any funds to private equity groups.
“We call it patient equity, to distinguish it from [the reputations] about private equity,” said Gayner, the chief investment officer at Markel.
“It’s essentially an extension of our investment in equity, but instead of just buying a limited number of shares, we can get 80 to 100 percent of the shares of a smaller business,” he said.
Gayner said he pays extra close attention to management, and wants leaders who have integrity and honesty.
He hopes for a double-digit return on the investment per year over the long haul, he said.
Markel Ventures sat on the sidelines for most of 2006 and 2007.
“We didn’t do any transactions then,” Gayner said. “We thought prices were too high, and there was a lot of leverage. Conditions are different now and there are better opportunities.”
Aaron Kremer is the BizSense editor. Please send news tips to Editor@richmondbizsense.com.
