H&F's move represented an attempt to reinvest in a former portfolio company—the San Francisco-based firm and Stone Point Capital were the primary sellers when KKR bought Sedgwick four years ago. (Stone Point retained a minority stake in that deal, however, and will do the same under Carlyle ownership.) KKR has backed a series of expansionary add-ons in the years since purchasing Sedgwick, including the takeover of fellow claims manager Cunningham Lindsey earlier this year.
Carlyle's acquisition of the Memphis-based Sedgwick is part of a growing wave of private equity interest in the US commercial services sector. Investors are on pace to complete almost 950 deals in the space this year, per PitchBook data, which would mark a third consecutive annual increase. This decade has brought explosive growth: In 2010, investors executed just 520 private equity deals with commercial services companies in the US.
It's likely a bit of small-sample-size theater, but the takeover is also an example of Tennessee's recent emergence as a hotbed for big-ticket buyouts. While Sedgwick is set to sell for $6.7 billion, Blackstone bought Knoxville healthcare staffing specialist TeamHealth for $6.1 billion in February 2017, while Cerberus Capital Management added Franklin-based hospital operator IASIS Healthcare onto Steward Health Care for nearly $2 billion several months later.
Cash for Carlyle's investment in Sedgwick will come from the firm's current $18.5 billion flagship fund as well as its third financial services buyout vehicle. Along with Stone Point, Caisse de dépôt et placement du Québec will maintain a minority interest. KKR's capital market arm will reportedly underwrite a major portion of the financing for the deal.