Roper Technologies, Inc. (NYSE: ROP) announced yesterday it would buy Vertafore Inc. for $5.35 billion. This would be its largest takeover deal to date. The company will acquire Vertafore from Bain Capital Private Equity and Vista Equity Partners with the acquisition expected to close in the third quarter.
Roper Technologies is a part of the S&P 500, Fortune 1000, and Russell 1000 indices. The company manages businesses that design and develop software, such as software-as-a-service, and engineered products for various markets. These markets include health care, transportation, energy, and education.
While these markets may be niche, the company is no stranger to huge deals.
“Roper’s businesses consistently have clear niche market leadership, strong management teams, high customer retention and a track record of consistent growth,” said Neil Hunn, president and CEO of Roper Technologies.
“We’re especially impressed by Amy and her team, their commitment to customer success, and their long-term focus to drive innovation across the insurance industry,” Hunn added.
In September 2019, Roper sold off its subsidiary Gatan for $925 million. This deal was finalized a month after the company acquired the software solutions firm iPipeline for $1.63 billion.
Roper is one of the largest publicly held companies in the Tampa Bay region, with revenues of $5.37 billion in 2019. The company also has more than 16,000 employees.
Vertafore is a private equity-backed insurance software vendor based in Denver, Colorado. Currently, it’s owned by buyout firms Bain Capital and Vista Equity Partners. The two firms bought Vertafore back in 2016 from TPG for $2.7 billion, including debt.
Since 2016, Vertafore has hired over 500 employees and improved its customer net promoter score by 200%. Additionally, the company has increased its annual recurring sales and investment in its products.
Roper and Vertafore are dedicated to the current and future landscapes of the insurance technology industry.
“In Roper, we have found a partner who shares both our vision and our values,” said Amy Zupon, CEO of Vertafore. “Their acquisition of Vertafore is validation of our strategy to provide innovative and critical solutions to our customers.”
Zupon said that Roper’s long-term mindset in choosing niche market leaders offers Vertafore a platform from which they can accelerate their goal of helping customers modernize their business operations.
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Impact of COVID-19
The Vertafore acquisition reveals that Roper hasn’t given up on its plans for expansion amid the coronavirus pandemic. As a result, many of its customers have been forced to alter their spending plans as the Saratoga-based company pushes forward.
Most companies already have business continuity plans, but they may find it difficult to pinpoint the unknown nature of such an outbreak. While typical contingency plans focus on natural disasters or cyber-attacks, they don’t generally consider global quarantines, stock market drops, travel restrictions, or school closures.
With insurance software companies witnessing a rise in demand for products, Roper expects Vertafore to contribute about $590 million of revenue and $290 million of earnings before interest, taxes, depreciation, and amortization in 2021.
The pandemic increases the consumer self-reliance trend – the very premise that fintech companies are founded on, according to Clarie Kwa, Chief Market Officer at 360F.
“If we consider that it takes 21 days to form a new habit, then we are way past the mark in this prolonged period of uncertainty,” Kwa told The Buttonwood Tree. “Ceteris paribus, B2C fintech companies ought to look forward to not only heightened customer acquisition but also lower churn than pre-COVID-19.”
Kwa believes established incumbents aren’t resting on their laurels either, leveraging in-house capabilities or partnerships with B2B fintech companies to jump on the latest trend.
“A self-reliant consumer pays less attention to branding but more to usability and fairness in the financial product,” said Kwa. “For example, an insurance product is deemed more attractive if it is highly self-customizable based on a transparent and competitive pricing structure. The winner, fintech or not, is the one who has the mindset to be in tune with the change of tide, the technological agility to deliver remotely, and the marketing sense to communicate over digital channels.”
With Roper using a great strategy during these uncertain times, multiple growth paths are being created for the future. The company anticipates funding the transaction using its cash-on-hand, revolving credit facility and new debt.
Insurance Tech Trends of 2020
As we move into a post-digital world, the realm of fintech continues to expand and transform over time. Now, the pressure is on, especially for insurance carriers.
Younger demographics, in particular, are showing little desire to venture into insurance over other, more attractive industries in the tech space.
Only 4% of millennials are interested in working for the insurance industry. While many baby boomers are nearing the traditional retirement age of 65, insurers are now searching for new ways to bridge the talent gap and strengthen their presence in the market.
Insurance technology partnerships and buyouts could enable insurance companies to position themselves as well-connected, exciting, and even trendy. This can help rebrand the traditional, “old and tired” image many are accustomed to.
Kwa says that there are three key insurance technology trends to look for in 2020:
- Personalization. It’s a foregone conclusion that people want and need financial advice. However, they don’t trust the financial advisor and cannot understand the complex insurance product themselves. So, their financial needs never get addressed properly.
- Digitization. Consumers are far from ignorant today, but they never have a simple and intuitive tool to remind them of the risk. A comprehensive financial planning exercise is exhaustive and time-consuming.
- Affordability. Consumers not only have to insure themselves and their futures, but they must insure their loved ones as well. The market trends show that we don’t do well in both areas. We think the real reason is because advice is seldom effective when figuring out the best solution to meet all needs within our time and money constraints.