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Judging from its impressive opening-day performance on April 1, 2010, investors were confident about Primerica’s competitive advantage in the insurance and asset-management industry. Listed as PRI on the New York Stock Exchange, Primerica closed at $19.65 the first day—30 percent more than its initial public offering price of $15—after its market debut. Its strong performance made Primerica one of the top-performing IPOs for the year to date, proving a successful divestment for Citigroup, Primerica’s former parent company. Citi also sold an extra 3.4 million shares than expected, for a total of 21.4 million shares purchased, increasing the transaction size by 19 percent.
Primerica’s Chief Executive Officers, John Addison and Rick Williams, along with a contingent of executives and representatives from across the country were present on the floor of the New York Stock Exchange to ring the day’s closing bell.
“This is an exciting and historic day for our company,” Addison says. “Today would not be possible without the hard work and dedication of our 100,000 independent representatives across North America and our 2,000 dedicated employees.”
Although some analysts credited investors’ robust IPO response to the low offering price, the incremental market rebound and the name cachet of Citigroup, a key factor that could not be overlooked was Primerica’s steady track record for annual revenue increase and its formidable salesforce comprised of approximately 100,000 licensed agents. As Warren Buffett advises, “The key to investing is… determining the competitive advantage of any given company and, above all, the durability of that advantage.” Despite global market volatility, Primerica is still proving durable—even 33 years after its initial incorporation. In 2009, Primerica sold nearly $3 billion in investment and savings products, resulting in $2.22 billion in revenue and $494.6 million in net income, tripling its 2008 profit of $167 million by almost 300 percent.
It was this continuous performance since its inception that has made the Duluth, Ga.-based company an attractive acquisition for Citigroup in 1988. Founded by Arthur L. Williams in 1977, the company’s mission was to help average families achieve financial stability and future economic security by helping reduce their consumer debt and plan a practical approach for their savings and retirement. “Buy term and invest the difference” became the mantra embraced by the company and imparted to clientele, propelling Primerica to the forefront of the life insurance industry. Gradually mutual funds, variable annuities and other asset-management services were added to the product portfolio.
In 2009, Primerica’s agents issued 233,800 new term-life insurance policies and acquired approximately 86,000 new mutual funds and 24,000 new variable-annuity clients. To date, Primerica insures over 4.3 million lives and maintains investment accounts for more than 2 million clients. It was Primerica’s substantial market share, which grew exponentially in the 1980s and 1990s in the consumer finance industry, that helped fortify Citigroup Inc. under the stewardship of former Chairman and CEO Sanford I. “Sandy” Weill, ultimately making it the third-largest bank in the United States.
Despite Primerica’s considerable contributions, Citigroup was plagued with troubled assets from risky investment banking and the subprime mortgage crisis. The decision to radically restructure Citigroup and divest assets not integral to its core commercial and retail banking business was a directive issued by CEO Vikram Pandit in an attempt to reconcile the $45 billion government bailout allocated under the Troubled Asset Relief Program (TARP) and help ensure Citi’s future viability.
As for Primerica’s future viability, industry analysts have noted the biggest benefits of Primerica’s now stand-alone status are minimal debt and a newfound autonomy that will allow the company to exercise strategies once overshadowed or even suppressed. Adding salespeople during this transition will also be key.
“We’re going to be a smaller, faster-growing company going forward,” Williams says. “When we grow the salesforce, the underlying sales grow.”
The decision to become a publicly traded company also allows Primerica to incentivize employees and sales representatives with equity awards and-or stock option programs that were not available as a Citigroup holding, thus creating new methods for motivating agents and employees and reinforcing a sense of community.
“We view this as a re-founding.”—John Addison, Co-CEO, Primerica |
Although Primerica initially filed the IPO in November 2009, according to the terms of the prospectus, Citigroup will pocket all proceeds from the offering and also retain between approximately 32 and 46 percent of Primerica’s pro forma shares of common stock. In addition, Citigroup engaged Warburg Pincus LLC, in a private sale of private equity funds managed by Warburg Pincus, for approximately 17.21 million shares of Primerica common stock for about $230 million plus warrants to purchase additional shares. Funds managed by Warburg Pincus will own between 23 and 33 percent of Primerica’s pro forma common shares.
Citi will also acquire most of Primerica’s existing accounts in the transaction. Divesting its remaining interests in Primerica will occur at a future unspecified date, subject to market indicators and conditions.
Primerica will keep its new policies and will engage in co-insurance agreements with three Citi affiliates, who will assume 80 to 90 percent of the risks and rewards of the term-life insurance policies maintained by Primerica at the close of 2009.
Reflecting on the entire process, John Addison is both enthusiastic and gracious.
“Citi’s been a great partner,” he says. “What the IPO does is create us as an independent company. Primerica is now its own company, its own business. We view this as a re-founding—an opportunity to enhance the entrepreneurial spirit of our organization and to align the interests of our independent salesforce and our employees with our future performance.”
