The planned acquisition of a Florida-based workers compensation carrier by Reno's Employers Holding Inc. supercharges the Nevada company's drive to diversify itself geographically.
But the purchase also would bring Employers more deeply into writing workers comp coverage for the construction industry, a market that's been a relatively small part of its business in the past.
AmCOM Inc., the North Palm Beach company that Employers plans to buy, got its start in 1982 as a self-insurance group for the Florida Air Conditioning Contractors Association, and 40 percent of its business these days comes from contractors.
Employers, meanwhile, has focused on low- and medium-risk industries such as restaurants, medical office and wholesalers, and construction companies have accounted for a relatively small part of its business.
The planned $194 million acquisition which Employers will finance with existing cash reserves as well as some new borrowings would dramatically increase the national footprint of the Reno company.
AmCOMP, which does business in 18 states, is strongest in Florida, a state targeted for growth by Employers but one in which the Nevada company's market share is barely a blip on the screen.
For AmCOMP, Florida accounts for some 29 percent of the premiums it writes. Employers, on the other hand, is strongest in California, which accounts for 71 percent of its business, and Nevada, which accounts for 19 percent.
In fact, Employers writes only 1 percent of its business in states where AmCOMP operates, said Douglas Dirks, president and chief executive officer of Employers.
William "Ric" Yocke, the chief financial officer of Employers Holdings, told analysts the company thinks it can wring 10 percent out of the operating costs of the combined companies. Savings, he said, would come from eliminating the expense of running AmCOMP as a public company, integrating some systems and reducing reinsurance costs.
On the other hand, Yocke estimates the one-time cost of integrating the two companies at about $12 million in 2008 and 2009.
In the first nine months of 2007, AmCOMP earned $16.4 million on revenues of $187.2 million. On a full-year basis, that would price Employers' bid at about 9.5 times earnings.
Employers plans to pay $12.50 a share for AmCOMP. The stock was trading at $8.75 before the acquisition was announced.
The deal is expected to close during the second quarter of this year, assuming it wins the approval of AmCOMP shareholders and state insurance regulators.
Employers, which grew out of the privatization of Nevada's state-operated workers compensation system in 2000, went public in January 2006. The initial public offering was priced at $17. Last week, the shares were trading on the New York Stock Exchange at $17.78.
