Kingsway Financial Services: Revolutionizing the Search Fund Model

I join full-time private investor Mark Vonderwell, to have a conversation with CEO J. T. Fitzgerald and CFO Kent Hansen of Kingsway Financial Services (KFS). This MicroCap Business Breakdowns discussion took place live on January 9th, 2024. You can listen and participate live by joining the community.

Kingsway Financial Service’s base business offering warranties for automobiles and HVAC systems generates the cash for their fledgling search funds business. Under Kingsway’s Search Xcelerator program, new business school graduates, using Kingsway’s capital leveraged with bank loans, purchase very small private companies from retiring founders and become the chief executive officers. While Kingsway owns the businesses, the “operators in residence” are compensated based highly on the acquired business performance. To date, Kingsway has had five operators-in-residence acquire six companies. Currently four more business school graduates are searching for an acquisition, with a goal to add two or three companies each year.

J.T. Fitzgerald became Kingsway’s CEO in September 2018 after joining the company when the private firm that he founded to invest in search funds, Argo Investment Management, was acquired by Kingsway in 2016. According to a Stanford Business School study, search funds have historically produced a 30%+ average return, albeit mostly middling returns aided by a small percentage of extraordinary winners. Fitzgerald hopes to improve on the historical success rate by aiding young operators in residence both in acquiring and operating companies with the counsel of experienced businessmen. An advisory board formed in 2022 includes Will Thorndike, an experienced search fund investor and author of the 2012 book titled “The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success” and retired, phenomenally successful Danaher ceo Thomas Joyce. Further boosting returns, Kingsway’s search acquisitions are shielded from taxation by over $700 million in tax net-operating loss carryforwards created by their shut down casualty insurance operations. Kingsway attracts potential operators in residence by providing capital and credibility, helping with legal contracts, and sharing a successful operating framework derived from Fitzgerald’s prior experience with the Danaher Business System.

You can listen/watch this business breakdowns on Spotify, Apple Podcast, and YouTube below:

MicroCap Business Breakdowns (MCBB) is a monthly program where we invite leaders of unique microcap businesses to have in depth conversations with the MicroCapClub member/investor that knows the business best. In each conversation we look to drill down into the history, business, strategy, vision, and bull/bear case. The MicroCapClub community can tune in live and ask questions. We publicize each episode two weeks after the live discussion. Not part of the MicroCapClub community? Join Us.

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