Industry

Trevor Baldwin Talks BRP IPO

“I think if anything, it’s just going to make us a better business because the level of accountability and the standards for executing at a really high level become even more important.”
By Maureen Brody Posted on November 19, 2019

Q
How will having to respond to shareholders change your behavior internally and externally?
A
Having shareholders is nothing new. We’ve had shareholders since the very beginning, when our business was formed in 2011 and in our predecessor organization in 2006. And we’ve had an outside family-office shareholder since 2015. So we believe by taking a stakeholder-centric approach, where you’re making decisions through the lens of how we can best serve all five of our stakeholders, results in the very best outcomes. And those are our clients, our colleagues, the insurance companies we trade with, the communities we work and live in, and then of course, our shareholders.

It should have no impact on our culture and how we interact both internally and externally. We’re going to continue executing and serving our stakeholders at a really high level.

Q
Once you go public, you get all sorts of complications, with other people looking at your acquisition and growth models, that sort of stuff. Do you anticipate problems or things that you’re going to have to tweak?
A
I think if anything, it’s just going to make us a better business because the level of accountability and the standards for executing at a really high level become even more important. We intentionally made the decision to go public because we felt like it was the best path for us to continue building the business for the long term. We [have been operating] at 23% EBITDA margin. That’s because we’re making significant reinvestment into our business to continue to serve our clients at a really high level and driving the outside organic growth that we’ve had.

If you compare that to many of the private-equity backed businesses that are operating at margins of 34% to 37%, there’s a stark contrast in the level of reinvestment we’re making in our platform versus some of our peers. This route we felt gave us the freedom to continue advocating and investing for long-term success.

Q
Your shareholders have now become stockholders, right? Are they going to be Class A?
A
We have both Class A and Class B stock, and they have the exact same voting rights. Class B is for the pre-IPO [shareholders]. The same voting rights as the Class A.
Q
When stockholders go to their annual shareholders meeting, they want to have some evidence, numbers; they want to have some say on pay; they want to know that broker compensation is aligned with best practices. They start getting into some of the nitty gritty on your pay policies. What’s your plan for dealing with that kind of thing?
A
We feel really good about the alignment we have between our executives and our risk advisors and our stockholders and shareholders, and we welcome input and viewpoint from our stockholders to make sure that we’re continuing to make decisions in the best lens for all of our stakeholders.
Q
Are you going to change your board at all, or are you going to stick with the same board you have now?
A
Today we have a five-person board. There’s two insiders and three outsiders. And we may add two additional outside, independent board members to that over time.
Q
Where are you focused right now? There are so many demands on a public company these days: regulatory demands in terms of accounting, your cyber defenses and costs, and even your nom-gov. Everyone is looking at you with a magnifying glass.
A
We take all of those risk areas incredibly seriously and spend a lot of time ensuring that we have the very latest and most state-of-the-art cyber defense and security protocols, and that our accounting practices are the very best with the best redundancies in place. We’re certainly looking to our board to provide some of that overall guidance and governance oversight to ensure that we’re continuing to build a first-class organization. And personally, I think that all of that will create peace of mind for our clients.

To know that the standard of care with which we operate our business is going to be at the very highest levels, ensuring that we have the very best cyber-security protocols and that our governance practices are ensuring that we’re executing for our stakeholders at a really high level.

Q
Let me ask you more specifically about say on pay and your EEO-1. You start to have to reveal yourself a little bit more in terms of how you’re compensating once you go public. What kind of preparations and thoughts have you already put into your EEO-1 and say-on-pay discussions as you go forward for your first annual meeting?
A
We’re working with a number of outside experts and consultants as well as our HR and legal teams to make sure that we are using all the best practices ensuring that our compensation aligns in the very best manner with overall stakeholder outcomes.
Q
I’m talking about super specific details, when people start seeing the numbers on broker pay. That kind of reveals a lot of information that most private brokerages keep very close to the vest.
A
I’m not prepared to go into very specific nuances at this time, but what I can tell you is that broker compensation is fairly standardized across the industry, even in the private peers. It’s not really much of a secret how those folks are being compensated, so that doesn’t give us any concerns at all. Our risk advisors are with us because they feel like they can be in a position to serve their clients in the very best manner on our platform as a result of the resources and expertise that they can harness to deliver for their clients. And we have no concerns about that.
Q
And your partnership model, will that have to be amended at all?
A
No, we’re continuing to look to partner with the industry’s very best entrepreneurs who want to be a part of a large entrepreneurial insurance enterprise that’s focused on continuing to make investments for long-term growth and success.
Q
I want to get your reaction to a statement from The Hales Report. It says, 'We assume traditional metrics will not be the ‘pitch’ for the public offering for Baldwin as market leading organic growth, TAM (total addressable market), the acquisition opportunity set will complement a focus on valuation as a multiple of revenue rather than multiple of EBITDA in 2019-2020.' What metrics did you use to get your IPO valuation?
A
Ultimately, most important is organic revenue growth and total revenue growth. We are fairly unique on the rate of growth that we’ve been able to deliver, and as a result of that, we offer public investors a unique growth opportunity in the insurance intermediary space that has not existed for quite some time.
Q
Are you going to pay dividends quarterly?
A
At this time, we don’t plan to pay dividends. We have such incredible opportunities to reinvest our cash flow, and that’s where we plan to spend our time.
Q
How will the stockholders get their return on investment?
A
As the value of our shares grow, they will see a substantial return over time. Most growth-oriented companies do not pay dividends. It doesn’t mean we won’t pay dividends at some point in the future, but at this time, we feel that we have tremendous opportunity to reinvest in our own business and create very tremendous returns for our shareholders.
Q
How do you plan to achieve the goal of being a top-10 broker within 10 years?
A
By continuing to attract some of the very best and brightest talent in the industry, who want to come together to be part of something greater than themselves. And continuing to deliver insight beyond insurance as we execute for our clients and our stakeholders broadly. And over that same time period, creating fantastic shareholder returns.
Q
Do you anticipate broadening your market, going into any kind of specialty lines, or developing or going out and acquiring new businesses? Massively increasing scale?
A
We will continue to look at M&A opportunities and at hiring talent and expanding into new geographies and bringing in new industry expertise and capabilities.
Q
And right now those are all in a “just keep your eyes open” stage.
A
Exactly.
Q
Do you think a move to IPO is something that’s going to gain traction, or do you think it’s really only certain brokerages that are cut out for this kind of thing?
A
I think it’s going to take certain characteristics. There’s a certain amount of scale that’s needed [along with] the depth and expertise of a leadership team across a number of areas you’ve highlighted already, such as accounting and finance and legal, as well as a desire to operate in a highly accountable environment. We’re looking forward to embracing that. So I wouldn’t say that others won’t do it or attempt to do it, but I don’t think it’ll be the norm.
Q
Did you already have public company expertise when you went into this, or are you new to this ball of wax?
A
I did not, but many of our senior executive team have come from a public company operating environment.
Q
We’ve seen and we’re hearing a lot of chatter about Medicare Advantage. Do you have anything that you’re focused on there? What do you think is going to be the growth potential there?
A
One of our four operating segments is focused primarily on the Medicare Advantage marketplace. We think it’s a fantastic market. And we’re excited about the growth potential there.
Q
Based on the aging population?
A
Yeah, demographics, the fact that Medicare Advantage is the fastest-growing part of the Medicare system and the outcomes-based reimbursement model, we think, is a model for the future.
Q
Final thoughts?
A
We’re incredibly excited about how this is going to allow us to continue to reward our colleagues. On the day of the IPO, every full-time colleague became a shareholder in the business, as we granted shares to every one of them. It’s also going to give us more tools from a compensation standpoint, with stock awards going forward to give a reward to people who are driving real value for the company. We’re really excited about that. We also have a public currency to use in M&A and are excited about partnering with some of the very best businesses in the industry to create a world-class platform.
Q
Did your subscription rate on your IPO date meet what you expected?
A
Yes, we’re very happy with the outcome and had great results on the first day of trading. So we’re super pleased.
Maureen Brody News & Copy Chief Read More

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