Allstate (NYSE: ALL) has agreed to acquire SquareTrade for $1.4 billion from an investor group that includes Bain Capital. The company, founded in 1999 by Ahmed Khaishgi and Steve Abernethy, started out as a website designed to serve as an intermediary during disputes between eBay buyers and sellers. Years later, its protection plans covering consumer electronics are now available through massive retailers like Amazon, Costco and Target. SquareTrade's progress from dot-com era startup to acquisition target has been aided by successfully straddling the financing line between venture capital investment and private equity backing over the past 17 years.
In 2000, SquareTrade raised a $9 million Series B led by Weston Presidio Capital and Chase Capital Partners at a $38 million valuation. Then, four years after securing $4 million of debt financing from BlueCrest Capital Finance in 2008, the company received a $238 million growth equity investment led by affiliates of Bain—one of only seven B2C investments the firm made in 2012, according to data from the PitchBook Platform. Other backers include Archer Venture Capital, East Peak Capital and Draper Richards.
For Allstate, the SquareTrade deal represents an attempt to diversify by adding protection plans for phones and tablets—connected devices at the core of the IoT—to its existing set of property and casualty insurance offerings. Allstate will fund the acquisition through a combination of cash and debt, diluting its own earnings per share for a period predicted to last three years. During a call with investors, Allstate CEO Thomas Wilson said that it might also take on the underwriting of SquareTrade’s protection plans. SquareTrade currently outsources underwriting to CNA Warranty Services and Continental Casualty, according to Warranty Week.
The Squaretrade transaction is expected to close sometime in January. Shares of Allstate traded lower on the news, closing down 3% to end the day at $69.63.