Root Inc. has received a buyout offer from an insuretech serial entrepreneur at $19.34 a share, The Wall Street Journal reported – multiples of where its stock has traded since fall but just pennies on its IPO valuation from nearly three years ago.
Embedded Insurance, a Utah startup founded by James Hall, has made several approaches to acquire the Columbus digital insurer over the past year, the publication said, citing unnamed insiders. Hall has founded and led three prior insuretechs to acquisition, according to Embedded's website.
The reported offer values the parent of Root Insurance Co. at $276 million – 4% of its $7 billion valuation in October 2020 when it celebrated the largest IPO in Ohio history. It's also half the $528 million in venture capital Root raised from its 2015 founding.
Hall privately sent the acquisition proposal to Root's board on June 9 after several attempts to start talks since last July, WSJ reported. (The annual meeting of shareholders was June 6.)
Root co-founder and CEO Alex Timm responded with several requests that Embedded addressed, the anonymous sources told the publication.
The stock price shot up after the scoop was published online late Wednesday, although still below the 52-week high of $27. Allowing for a reverse stock split, the IPO share price was $486.
Company representatives were not immediately available Thursday morning. In a statement to the Journal, the company said the board "evaluates how best to deliver shareholder value in accordance with its fiduciary duties."
For Hall to prevail after a year of trying would require swaying some combination of Timm, one or more of the VC firms who were earliest investors, and other board members; together they control 87% of voting power, so retail shareholders can't force a move as a group.
Early investors and officers have a class of stock that gives them 10 votes per share. Here's how voting power breaks down, according to a Columbus Inno analysis of Root's proxy:
- Ribbit Capital: 31%
- Drive Capital LLC, the Columbus firm that was first investor and incubated the startup from two founders: 24%
- Timm: 18%
- Redpoint Ventures: 9%
- Dan Rosenthal, who had different C-suite roles including CFO before stepping down in February: 2%
- Carvana Co., the online used car seller that invested $126 million in Root and offers Carvana-branded insurance powered by the Columbus company's technology at checkout: 1%
- SVB Financial: 1%
- All other shareholders as a group: 13%
Root also has $296 million in long-term debt, most of it from a $300 million loan from investment group BlackRock Inc. It was not immediately clear how the debt would be handled if the acquisition were approved.
The startup has had losses since inception, although cutting hundreds of jobs and slashing marketing helped slow its cash burn over the past year. In a high-flying year for VC and IPOs, Root debuted on the market as a tech disruptor, but investors have treated it as a traditional insurer.
Timm and finance leaders in the company had projected that Root could make the turn to profitability in the coming two years without raising additional outside capital.
Heavy losses have hit the entire property and casualty industry since 2021 due to pandemic supply chain constraints driving up the cost of repairing and replacing cars, plus unprecedented severe weather events. Even century-old insurers are seeing elevated loss ratios, but unlike a startup they have a deep capital cushion to rely on.
