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Financing agency growth
Oak Street Funding's new owners provide additional capital
By Dennis H. Pillsbury
We’ve all seen the news about how tight the lending market is, especially for small
businesses with intangible assets or few assets. In fact, tight would be a
welcome improvement. Banks, despite the influx of federal funds that were
supposed to be used to increase lending, close their lending windows when they
see an independent agency approaching.
Their mantra might well be described as, “We will happily lend money to those companies that don’t need it; that have substantial tangible assets to use as collateral.” An interesting attitude from institutions that carried substantial intangible
assets on their books in the form of “shaky” derivatives. But that’s another story entirely.
Fortunately, there is a firm that not only lends to independent agencies, but
specializes in doing so. And its expertise in this area has produced “record growth year after year,” according to Rick Dennen, president and CEO of Oak Street Funding LLC. In fact,
Oak Street recorded its best year ever in 2009, a year that saw many financial
institutions in less savory condition.
Oak Street’s secret is that it actually understands the insurance agency business and its
unique revenue stream. This expertise and success was recently recognized by
Angelo, Gordon & Co., a New York-based investment firm with about $23 billion under management,
when the private equity funds managed by the firm acquired Oak Street.
As Art Peponis, co-head of private equity at Angelo Gordon, notes: “Angelo Gordon specializes in identifying strong business models with
infrastructure and management teams for support and development of growth
opportunities.” Oak Street has “carved out a unique position in the insurance-lending industry and we believe
the company is poised to continue its growth,” he concludes.
“A lot of growth will come from mergers and acquisitions in the agency system
over the next five years,” Rick observes. “The carriers are forcing consolidation as they look for increased premium
commitments. In addition, a lot of agency owners are reaching retirement age
and are looking for ways to finance perpetuation. This has been exacerbated by
a soft market in the property/casualty arena that has put pressure on profit
margins and available capital from internal sources.
“Our knowledge and understanding of the agency business allows us to work with
buyers and sellers to figure out a way to align their interests, creating a
win-win situation that is important for any merger or acquisition to succeed,” Rick continues.
“Oak Street has utilized a specialized knowledge of insurance to develop
proprietary financing models for agents,” notes Michael Mensch, an intermediary with Agency Brokerage Consultants,
Melbourne, Florida, a firm the specializes in insurance agency mergers and
acquisitions. It operates along the Eastern Seaboard, with the exception of the
New England states.
“While most lenders require substantial tangible assets to secure a loan,” Mike continues, “Oak Street secures the loan against the intangible stream of commission revenue.
Through this strategy, they have made financing available to a broader market
of individuals, which creates value to both buyers and sellers of an insurance
agency or book of business.”
Mikes adds that “the staff at Oak Street are very knowledgeable about regional insurance markets,
agency financial models, and the acquisition process. Again, this is because
the company has chosen to niche in a specialized market so the staff work
exclusively on agency financing every day.”
Rick points out, “The real secret to our success is that we have the right people in place. The
confidence that Angelo Gordon has shown in us is a testament to our people and
process. It is Oak Street’s focus that allows the staff to provide superior service, thus we have grown
every year and have become recognized as the lender of choice in the insurance
agency marketplace.”
Mike picks up on this by noting that he finds the staff “to be very personable, hard working, honest and diligent. I’ve worked with many lenders over the years and it is a sad truth that a high
percentage of them can be unresponsive, make false promises, or lack knowledge
of business valuations. The staff at Oak Street has always gone above and
beyond to provide the best service.”
Oak Street has provided approximately $200 million in capital to more than 1,200
agencies nationwide since its founding in 2003. Rick says: “We’ve done this by learning from great business leaders like Warren Buffett, who
suggests that business owners zero in on these four strategies:
• Build liquidity so you can readily access cash.
• Continually add to your competitive advantage.
• Diversify your revenue stream.
• Hire stars for your team.
“We’ve followed these principles from Day One,” Rick observes.
While the employees represent a major part of Oak Street’s “competitive advantage,” another important part is the proprietary software the company has developed. “Our software allows us to track collateral value every month,” Rick says proudly. “We always know where we stand and whether any corrective tweaks are needed. In
fact, a number of banks have recognized our expertise in this area and began
asking us to help them work with troubled loans inside the banks. We
established Oak Street Servicing in 2008 to provide services on niche assets
classes to these banks.”
Rick sees the future as filled with opportunities. “First and foremost,” he says, “the partnership with Angelo Gordon allows us to strengthen our position as the
top insurance lender, and we now have the ability to better serve our customers
and actively expand our products and services into new areas.
“The potential for growth within the insurance agency marketplace is enormous,” he continues. “While there have been many successful insurance agencies that have emerged from
the pack despite the challenging economy, some haven’t been able to secure capital to fund acquisitions or organic growth. Our new
relationship with Angelo Gordon allows us to better serve these agencies’ needs with the capacity to fund larger deals.”
In addition, Rick continues, the unique expertise Oak Street has developed in
underwriting loans based on intangible assets “should allow us to enter other niche lending areas. We see this as a new growth
area for a separate business entity that we will be entering shortly. And, as
we’ve always done, we will do so with the utmost care to protect our investors and
our employees.”
Rick concludes: “As we grow and expand, we will never lose sight of our original vision to
utilize industry knowledge and well-developed technology as well as deliver
best-in-class service and capital products. I am extremely proud of what we
have accomplished so far and will be looking for talented people with a
customer focus and passion for business to join our team and integrate with our
culture of success and caring.”
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