8-K: SelectQuote Secures $350 Million Investment Led by Bain Capital and Morgan Stanley

SelectQuote announces a $350 million strategic investment from Bain Capital and Morgan Stanley Private Credit to enhance growth and improve its capital structure.

Summary

• SelectQuote reported a $350 million strategic investment from Bain Capital, Morgan Stanley Private Credit, and Newlight Partners.
• The investment aims to grow SelectQuote's healthcare services business and improve relationships with carrier partners.
• The funds will be used to recapitalize the balance sheet, lower annual debt service, and increase operating flexibility.
• SelectQuote is also appointing Chris Wolfe of Bain Capital and Srdjan Vukovic of Newlight Partners to its Board of Directors.
• The transaction is expected to close on February 28, 2025.
• SelectQuote's CEO, Tim Danker, expressed excitement about the investment and the expertise the new board members will bring.
• Jefferies served as Exclusive Financial Advisor and Wachtell, Lipton, Rosen & Katz served as legal advisor to SelectQuote in the transaction.

Sentiment

Score: 8

Explanation: The announcement is positive due to the significant investment, improved capital structure, and addition of experienced board members. The company's focus on growth and deleveraging contributes to a favorable outlook.

Positives

• The $350 million investment will improve SelectQuote's liquidity and operating flexibility.
• The company expects to lower its annual cash debt service as a result of the investment.
• The addition of Chris Wolfe and Srdjan Vukovic to the Board of Directors brings valuable expertise.
• The company's successful renegotiation of its Senior Secured Credit Facility provides a lower interest rate on the remaining balance.

Future Outlook

The company anticipates continued growth in the senior health insurance and healthcare services marketplaces, with the strategic investment providing the necessary financing.

Management Comments

• SelectQuote delivered impressive results during our fiscal second quarter despite a historically disruptive Annual Enrollment Period.
• Our strong policy volume and Senior Adjusted EBITDA margin of 39%, up approximately 750 basis points year-over-year, are additional proof points of our differentiated, high-touch, agent-led model.
• American Seniors faced an unprecedented level of plan terminations and benefit changes this season, and we take great pride in that fact that consumers sought out SelectQuote as they navigated such a challenging market backdrop.
• SelectQuote wins when our customers win, and this quarter is evidence of that.
• SelectQuote also delivered another quarter of strong results within our Healthcare Services segment, led by SelectRx.
• We now have over 96,000 members, which represents growth of 54% compared to a year ago.
• We expanded our global Revenue to CAC to 5.3X, which demonstrates our continued ability to generate attractive returns as a comprehensive healthcare services provider.
• We took another large step to improve our capital structure with todays announcement of a $350 million strategic investment led by Bain Capital and Morgan Stanley Private Credit.
• The transaction provides improved liquidity and operating flexibility to grow within our Senior and Healthcare Services businesses.
• We are excited to have Bain Capital and Morgan Stanley Private Credit as strategic partners as we pursue the tremendous growth opportunity provided by our unique platform within the healthcare ecosystem.
• This strategic investment provides the financing we need to capitalize on the robust growth opportunities we foresee in both the senior health insurance and healthcare services marketplaces.
• This deal, on the heels of our 2024 receivables securitization, marks the second meaningful milestone toward our ultimate goal of refinancing the business and significantly deleveraging the balance sheet.
• We look forward to benefitting from Chriss and Srdjans valuable growth-oriented healthcare expertise to help augment the Companys mission to drive long-term value creation.

Industry Context

The announcement highlights the increasing investor interest in the healthcare and insurance distribution sectors, particularly companies leveraging technology and data to improve consumer access and choice.

Comparison to Industry Standards

• The strategic investment is comparable to other recent investments in the insurance and healthcare services industries, such as CVS Health's acquisition of Oak Street Health, which demonstrates the value of integrated healthcare solutions.
• The appointment of experienced board members from Bain Capital and Newlight Partners is a common practice in private equity investments, aiming to provide strategic guidance and operational expertise.
• The focus on deleveraging the balance sheet aligns with industry trends, as companies seek to improve financial stability and attract long-term investors.

Management Changes

Stakeholder Impact

• Shareholders: Positive impact due to improved financial stability and growth prospects.
• Employees: Potential for growth and development within the company.
• Customers: Continued access to a wide range of insurance and healthcare services.
• Carrier Partners: Strengthened relationships and potential for increased business volume.
• Creditors: Improved creditworthiness and reduced risk of default.

Next Steps

• Close the strategic investment transaction, expected on February 28, 2025.
• Appoint Chris Wolfe and Srdjan Vukovic to the Board of Directors.
• Continue exploring accretive, strategic solutions with insurance carrier partners.
• Grow the rapidly expanding healthcare services business.

Key Dates