SCHEDULE: Hagerty Holding Corp. Adjusts Stake, Sells Shares

Hagerty Holding Corp. reported a partial sale of its Class A common stock in Hagerty, Inc. through a public offering, while maintaining significant voting control and outlining future exchange rights.

Summary

• Hagerty Holding Corp. (HHC) filed an amendment to its Schedule 13D, detailing changes in its beneficial ownership of Hagerty, Inc. Class A common stock.
• HHC beneficially owns 167,788,906 shares of Class V Common Stock and an equal number of OpCo Units, which are exchangeable for Class A Common Stock or cash.
• This represents approximately 62.9% of the Class A Common Stock on a fully-diluted basis, and HHC controls approximately 66.2% of the total voting power.
• HHC, along with Aldel, sold a total of 9,699,000 shares of Class A Common Stock in a public offering at $9.34 per share, with an option for underwriters to purchase an additional 1,455,000 shares.
• HHC specifically sold 8,245,000 shares of Class A Common Stock to underwriters on August 11, 2025, at a price of $8.9197 per share.
• HHC entered into a 90-day lock-up agreement, restricting further sales of its shares without underwriter consent, with certain exceptions.
• The filing also details existing agreements, including an Investor Rights Agreement granting HHC, Markel, and State Farm director nomination and preemptive rights, and a Tax Receivable Agreement related to tax benefits from OpCo exchanges.

Sentiment

Score: 7

Explanation: The filing details a planned secondary offering by a major shareholder, Hagerty Holding Corp., which provides liquidity while the Hagerty family maintains significant control. The terms of the offering and associated agreements appear standard for such transactions, indicating a stable, albeit adjusted, ownership structure.

Positives

• HHC maintains significant voting control (approximately 66.2%) over Hagerty, Inc., ensuring stable governance by the founding family.
• The public offering provides liquidity for HHC and Aldel, potentially diversifying their holdings.
• Existing agreements like the Investor Rights Agreement and Amended and Restated Registration Rights Agreement provide HHC and other key investors with substantial influence and future liquidity options.

Negatives

• The sale of 8,245,000 shares by HHC and 1,455,000 shares by Aldel in the public offering could lead to dilution for existing shareholders not participating in the offering.
• HHC sold its shares to underwriters at $8.9197 per share, which is lower than the public offering price of $9.34 per share, indicating a discount for the underwriters.
• The 90-day lock-up period restricts HHC's ability to sell additional shares, limiting immediate liquidity for a significant portion of its holdings.

Risks

• The Internal Revenue Service or other tax authorities may challenge the existing tax basis, tax basis increases, or other tax attributes subject to the Tax Receivable Agreement (TRA), potentially reducing anticipated tax benefits.
• The Company will not be reimbursed for any payments previously made under the TRA if tax benefits are subsequently disallowed, except for netting against future payments.
• Breach of material obligations under the TRA, bankruptcy, insolvency, or early termination could accelerate TRA obligations into a lump sum payment, potentially impacting the Company's liquidity.
• The Class V Common Stock has 10 votes per share until December 2, 2036, or transfer to a non-qualified transferee, after which it has one vote per share, which could impact future voting power dynamics.

Future Outlook

Hagerty Holding Corp. expects to periodically review its investment in Hagerty, Inc., potentially purchasing additional Class A Common Stock or other securities, or exchanging its Class V Common Stock and OpCo Units for Class A Common Stock or cash, depending on market conditions and the Company's prospects. The Hagerty family members also have specific rights to exchange shares for liquidity under certain conditions, including estate obligations.

Industry Context

This filing reflects a common practice for founding families or significant shareholders in publicly traded companies to manage their holdings, including through secondary offerings for liquidity and maintaining control through dual-class share structures. For an insurance company like Hagerty, Inc., such ownership structures can provide stability and long-term strategic alignment, which is often valued in industries requiring long-term capital and consistent vision.

Comparison to Industry Standards

• The dual-class share structure, where Class V Common Stock carries 10 votes per share compared to Class A's one vote, is a common mechanism used by companies, particularly those with a strong founder presence, to maintain control post-IPO. Companies like Google (Alphabet), Facebook (Meta), and Ford have historically utilized similar structures.
• The lock-up agreement is standard for secondary offerings, ensuring market stability post-sale.
• The Tax Receivable Agreement is also common in SPAC mergers or reorganizations involving partnerships/LLCs, designed to share tax benefits with pre-IPO owners, seen in companies like Vroom or DraftKings post-SPAC.

Corporate Governance

Related Party Transactions

• Hagerty Holding Corp. (HHC) is owned by members of the Hagerty family, including McKeel Hagerty (CEO of Hagerty, Inc.) and Tammy Hagerty, and the Kim Hagerty Revocable Trust.
• HHC sold 8,245,000 shares of Class A Common Stock in the public offering.
• The Tax Receivable Agreement (TRA) involves payments from the Company to Legacy Unit Holders (HHC and Markel) for 85% of cash tax benefits.
• The Investor Rights Agreement and Amended and Restated Exchange Agreement involve HHC, Markel, and State Farm, outlining rights related to director nominations, preemptive rights, and share exchanges.

Stakeholder Impact

• **Shareholders**: The public offering provides liquidity for selling shareholders (HHC and Aldel) but could lead to dilution for other Class A shareholders. The continued significant voting control by HHC ensures stability in leadership but limits influence for minority shareholders.
• **Management**: McKeel Hagerty, as CEO of Hagerty, Inc. and a principal stockholder of HHC, maintains strong influence over the company's direction.
• **Creditors**: The Tax Receivable Agreement's potential acceleration clause in case of company breach or insolvency could impact the company's financial obligations and, indirectly, creditors.

Next Steps

• HHC may purchase additional Class A Common Stock or other securities of the Company in the open market or privately.
• HHC may surrender Class V Common Stock and OpCo Units for Class A Common Stock or cash.
• McKeel Hagerty, Tammy Hagerty, or the KH Trust may require HHC to exchange Class V Common Stock and OpCo Units for Class A Common Stock annually, up to 2% of outstanding Class A shares, starting from the third anniversary of the BC Closing.
• Estates of McKeel Hagerty or Tammy Hagerty may cause HHC to surrender Class V Common Stock and OpCo Units to cover estate obligations upon their death.
• The 30-day option for underwriters to purchase additional shares from HHC and Aldel may be exercised.
• The 90-day lock-up period for HHC will expire, after which HHC may have more flexibility to sell shares, subject to certain exceptions.

Key Dates

Recommendation

The filing primarily details a secondary offering by a major shareholder and adjustments to beneficial ownership, rather than operational performance. While the offering provides liquidity for the selling parties, the core business fundamentals of Hagerty, Inc. are not addressed. The Hagerty family maintains significant control, which can be a positive for long-term stability but also limits external influence. The risks associated with the Tax Receivable Agreement are noted but are not new. Without new financial performance data or strategic shifts, a 'hold' recommendation is appropriate, suggesting investors maintain their current position while monitoring future operational reports and market conditions.

Keywords

Hagerty Inc, Hagerty Holding Corp, SEC Filing, Schedule 13D, Beneficial Ownership, Class A Common Stock, Class V Common Stock, Public Offering, Lock-Up Agreement, Investor Rights Agreement, Tax Receivable Agreement, Corporate Governance, Share Sale, Equity, Insurance Company