Blue Orca-做空Baldwin保險(xiǎn)集團(tuán)（英）

THISRESEARCHREPORTEXPRESSESSOLELYOUROPINIONS.Weareshortsellers.Wearebiased.Soarelonginvestors.SoisBaldwin.SoarethebanksthatraisedmoneyfortheCompany.Ifyouareinvested(eitherlongorshort)inBaldwin,soareyou.Justbecausewearebiaseddoesnotmeanthatwearewrong.UseBOCTexas,LLC’sresearchopinionsatyourownrisk.Thisreportanditscontentsarenotintendedtobeanddonotconstituteorcontainanyfinancialproductadvice.Investorsshouldseektheirownfinancial,legalandtaxadviceinrespectofanydecisionregardinganysecuritiesdiscussedherein.Youshoulddoyourownresearchandduediligencebeforemakinganyinvestmentdecisions,includingwithrespecttothesecuritiesdiscussedherein.WehaveashortinterestinBaldwin’ssecuritiesandthereforestandtorealizesignificantgainsintheeventthatthepriceofsuchsecuritiesdeclines.Pleaserefertoourfulldisclaimerlocatedonthelastpageofthisreport.

COMPANY:BaldwinInsuranceGroup,Inc.│NASDAQ:BWIN

INDUSTRY:InsuranceBroker

PRICE(ASOFCLOSE10/29/2024)

USD50.49

MARKETCAP

USD5.9BN

WeareshortBaldwinInsuranceGroup,Inc.(“Baldwin”orthe“Company”),achronicallyunprofitablerollupofinsurancedistributorswhichwebelieveengagesinquestionablefinancialengineeringtohidecostsfromitsincomestatementandinflateadjustedEBITDAandoperatingcashflow.

OurdiligencehasuncoveredmultipleinstancesinwhichBaldwinhasacquiredsmallinsurancefirmsofagentsthat,accordingtostaterecords,werealreadyworkingforBaldwinbeforethetimeoftheacquisition.WebelievethatBaldwin’sacquisitionsamounttoaggressivefinancialengineering,allowingittoshiftcommissioncostsfromitsincomestatementtothebalancesheet

intheformofearnoutliabilitiesandcapitalizedassets,thusartificiallyinflatingadjustedEBITDAandoperatingcashflow.

Theimpactofthisfinancialmaneuveringappearstohavebeensignificant.WebelievethaterasingcommissioncostsinflatedBaldwin’sadjustedEBITDAbynearly50%anditsoperatingcashflowsby252%overthelastfourandahalfyears.Tomakemattersworse,wesuspectthatBaldwinmanipulatesthediscountratetounderstatethereportedcontingentearnoutliabilitiesandartificiallyunderstateitsleverageratio.

What’smore,webelievethat,undisclosedtoinvestors,Baldwin’smostsignificantdriverofEBITDAisabouttoloseitskeyunderwriter.SinceBaldwinpurchasedWestwoodInsuranceAgency(“Westwood”)fromQBE(QBE:AU)in2022,WestwoodhasbeenBaldwin’sprimarydriverofadjustedEBITDAandismorethantwiceasprofitableasallofitsotherbusinessestakentogether.ButQBErecentlyalertedthemarketthatitwillceaseunderwritingWestwoodpoliciesinMay2025becauseithasbeensuchanunprofitablebusiness.Remarkably,toourknowledge,BaldwinhassaidnothingofQBE’simminentdeparturetoinvestors.WebelievethatwhoeverBaldwinfindstoreplaceQBEwilldemandmateriallybetterterms,hammeringWestwood’smargins.Thus,webelieveBaldwin’sprimarydriverofadjustedEBITDAisabouttobesignificantlyhamstrung,strainingabusinesswhichalreadyoperatesataloss.

Baldwinhasconsistentlyreportedsignificantpre-taxlosseseachyearsincegoingpublic,insteadinstructinginvestorstouseadjustedEBITDAtojudgeitsprofitability.Butwebelievethatthismetricissoheavilymanipulatedbynonsenseadjustmentsthatitnowdeviatessignificantlyfromoperatingcashflowsgeneratedbythebusiness.Inouropinion,thisnon-GAAPmetricnotonlyinflatesBaldwin’sperceivedprofitabilityamonginvestors,butunjustlyenrichesmanagement,whosecompensationistiedtothisnonsenseandseeminglyinflatednon-GAAPmetric.

Ultimately,webelieveBaldwinissetupforanuglycorrectionasinvestorscometounderstandthetruthofitstroublingleverageandchronicunprofitability,hiddenbeneathafa?adeoffinancialalchemy.

1.DisguisingCommissionPaymentsManipulatesReportedCashFlows,OperatingLosses,andAdjustedEBITDA.We

believethat,undisclosedtoinvestors,Baldwinacquiresinsuranceagenciesfromitsownagents.WediscoveredmultipleinstancesinwhichBaldwinhasacquiredsmallinsurancefirmsofagentsthat,accordingtostaterecords,werealreadyworkingforBaldwinbeforethetimeoftheacquisition.WashingtonstaterecordsshowmultipletransactionsinwhichtheagentswerealreadyregisteredtoBaldwinmonths(ifnotayear)beforeBaldwinacquiredtheirsmallagencies.

WesuspectthatBaldwinutilizesacquisitionaccountingtoeraseoperatingexpensesbyshiftingwhatwouldhavebeencommissionstoinsuranceagentsfromtheincomestatementintoearnoutliabilitiesonthebalancesheet,which,whenpaid,donotflowthroughtheincomestatement.Themagnitudeofitsearnoutpaymentsisamajoroutlieramongpeers,suggestingthatBaldwinhasbeenfarmoreaggressiveindisguisingagentcompensationbeyondtheundisclosedrelated-partydealsalone.Inourview,thisisaformoffinancialengineeringthatartificiallyinflatesoperatingincome,adjustedEBITDAandoperatingcashflows.

2

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

WebelievethatanypropervaluationofBaldwinshouldadjustitsfinancialstocategorizecontingentearnoutpayments,whichwebelieveareessentiallydisguisedcommissioncosts,asoperatingexpenses.Baldwinisalreadyheavilyleveredandhasreportedstaggeringpre-taxlosseseveryyearsinceitsIPO.Webelievethat,withoutitsuseoffinancialengineeringtomaskagentcommissionsasacquiredassetsandcontingentearnoutliabilities,Baldwin’sreportedlosseswouldhavebeenfarworse.

Webelievethat,adjustingforearnoutpaymentsalone,Baldwin’soperatinglossesoverthelastfourandahalfyearswerenearlydoubletheamountreported.Thisre-categorizationalsosuggeststhatBaldwininflateditsadjustedEBITDAbynearly50%anditsoperatingcashflowsby252%.Tomakemattersworse,webelievethatBaldwinmanipulatesthediscountratetounderstatethefairvalueofitscontingentearnoutliabilitiesreportedonthebalancesheet,thusunderstatingtheliabilitiesassociatedwiththesetransactionsandartificiallyunderstatingitsleverageratio.

2.ImminentDemiseofBaldwin’sPrimaryProfitCenter.SinceBaldwinpurchasedWestwoodfromAustralianlistedpubliccompanyQBE(QBE:AU)in2022,WestwoodhasbeenBaldwin’sprimarydriverofadjustedEBITDAandismorethantwiceasprofitableasallofitsotherbusinessestakentogether.ButQBErecentlyalertedthemarketthatitwillceaseunderwritingWestwoodpoliciesinMay2025becauseithasbeensuchanunprofitablebusiness.Itisnothardtoseewhy.QBE’ssegmentwhichunderwritesWestwoodpolicieslost$250millioninFY2023andlost$90millioninthefirsthalfofFY2024.Remarkably,toourknowledge,BaldwinhassaidnothingofQBE’simminentdeparturetoinvestors.EvenifBaldwincanfindareplacement,thenewunderwriterwillalmostcertainlydemandfarbettertermsthanQBE,includinglowercommissionsforBaldwin.NotonlyisthenewunderwriterlikelytohammerWestwood’smarginsbutgiventhatwebelievethesepolicieswillsoonbecomemoreexpensiveforconsumers,organicgrowthisalsolikelytosuffer.Ultimately,webelieveBaldwin’sprimarydriverofadjustedEBITDAandasubstantialdriverofitsorganicgrowthisabouttobehamstrung,strainingabusinesswhichalreadyoperatesataloss.

3.TheEBITDAIllusion:VeryLittleCashFlowConversionfromHeavilyAdjustedProfitabilityMetricDrivingManagementBonuses.Baldwinhasconsistentlyreportedsignificantpre-taxlosseseachyearsincegoingpublic.ButtheCompanyconvenientlypromotesitsheavilyadjustedEBITDAasitsprimaryprofitmetric.Thisnon-GAAPfigure,inouropinion,ismerelyanillusion,soheavilymanipulatedbynonsenseadjustmentsthatitshowsnomeaningfulrelationshiptounderlyingcashflows.Inthepasttwofiscalyears,Baldwinhasonlyconvertedapaltry8%ofadjustedEBITDAtooperatingcashflow,suggestingthenon-GAAPmetricbearslittlerelationshiptotheunderlyinghealthofthebusiness.Baldwin’sEBITDAadjustmentsappearsubstantiallymoreaggressivethanitspeers,particularlywithrespecttoelevatedshare-basedcompensation,andamysteriousbucketof“other”items.Inouropinion,thisheavilyinflatedadjustedEBITDAfigurenotonlymisleadsinvestorsbyinappropriatelyinflatingBaldwin’sperceivedprofitability,butunjustlyenrichesmanagementwhosecompensationistiedtothisnonsensenon-GAAPmetric.

4.HighLeverageandPersistentUnprofitabilityUndermineFinancialStability.Since2020,Baldwinhasraised$1.5billionindebttofuelitsacquisitionspree,sendingtheCompany’scashinterestexpensesoaringfrom$9millionin2019to$109millioninLTM1H24.BaldwinasksinvestorstomeasureitscapacitytoserviceitsdebtusingitsinflatedadjustedEBITDAmetric,which,again,isnotrepresentativeofitstrueunderlyingoperatingcashflows.Wecalculatethat,whencomparingitsinterestpaymentswithitsadjustedpre-interestoperatingcashflow,Baldwinissoleveredthatitsmountinginterestpaymentsconsume90%oftheCompany’sadjustedpre-interestcashflowfromoperations.

5.HeavyInsiderSelling.InsiderswhoknowtheCompanybestaresellingsharesatafreneticpace.LedbyBaldwin’sChairman,insiderssold$76.7millioninstocksince2022,includingsubstantialsaleswhenBaldwin’ssharestradedathalfthecurrentprice.WhyshouldinvestorshaveanyfaithinBaldwin’sbusinessifthosewhoknowitbestareheadingfortheexits?

3

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

1.DisguisingCommissionPaymentsManipulatesReportedCashFlows,OperatingLosses,andAdjusted

EBITDA

WehavediscoveredmultipleinstancesinwhichBaldwinhasacquiredsmallinsurancefirmsofagentsthatstaterecordsindicatewerealreadyworkingforBaldwinbeforethetimeoftheacquisition.Inouropinion,wesuspectthatthepurposeoftheseundisclosedrelated-partyacquisitionsistomanipulatetheCompany’sfinancialsbydisguisingcommissionpayments,whichwouldotherwiseberunthroughtheincomestatementasoperatingexpenses.

WespecificallyobservedthepatterninWashington,whichnotcoincidentally,isoneoftheonlyjurisdictionsinwhichthestatewideregulatoryagencyprovidesmoredetailedandgranulardisclosuresabouttheworkhistoryofinsuranceagents.Withthisadditionaldata,wewereabletoseethatBaldwinwasacquiringtheinsurancebusinessesofregisteredinsuranceagentsthataccordingtoWashingtonstaterecords,werealreadyworkingforBaldwin.Wesuspectthatthispatternislikelymorewidespread,however,withoutmoregranulardisclosuresfromotherstateregulators,furtherinstancesarenotasreadilyapparent.

Tous,thisappearstobeaplaincaseofmanipulativefinancialengineering.Baldwinisaroll-upofinsurancedistributors,acquiring35firmssinceIPO.Manyoftheseacquisitionswerepurchasedatunusuallyhighmultiples.Whenwespoketoanagentaboutthenatureoftherelatedearnouts,heconfirmedthattheywerecontingentpaymentstiedtonewbusiness–whichinourview,areclearlycommissionpaymentsindisguise.

WebelievethatBaldwinrollsupagenciestotransformcommissionexpensesduetoagentsintoearnoutliabilitiesonthebalancesheet.Whenpaid,theydonothittheincomestatement,butareinsteadcategorizedascashoutflows,partiallywithincashfromoperatingactivitiesandpartiallywithincashfromfinancingactivities.Inouropinion,thismaneuverthusinappropriatelyerasesoperatingexpenses,inflatesoperatingcashflowsandinflatesadjustedEBITDA.What’smore,wealsobelievethatthereissignificantevidencetosuggestthattheCompanyarbitrarilytogglesthediscountratetounderstatetheamountofsuchearnoutliabilities.

WebelievethatanypropervaluationofBaldwin’sstockmusttreatthesedisguisedcommissionsasoperatingexpenses.Ourcalculationssuggestthatdisguisingfuturecommissionsasearnouts,insteadofexpenses,aloneerased$69millioninoperatingcosts,whichshouldbeaddedbacktoitsincomestatement.ThisimpliesthatBaldwin’soperatinglossesoverthelastfourandahalfyearswerenearlydoubletheamountreported.Italsosuggests,inouropinion,thatBaldwin’sadjustedEBITDAwasinflatedbynearly50%anditsoperatingcashflowswereinflatedby$145million,

or252%.1

a.UndisclosedRelatedPartyShenanigans:BuyingAgenciesfromAgentsAlreadyWorkingforBaldwin

Inmultiplecases,publicrecordsshowthattheownersoragentsofcompaniesacquiredbyBaldwinwerealreadyworkingforoneoftheCompany’ssubsidiariespriortotheacquisition.Tous,thedatasuggeststhat,undisclosedtoinvestors,theCompanyacquiredmultipleinsuranceagenciesfromitsagents.Webelievetheseacquisitionsareatypeofundisclosedrelated-partytransactionwhichwethinkenabledBaldwintoshiftcommissionsoutofitsincomestatement,erasingoperatingexpensesandinflatingbothoperatingincomeandoperatingcashflow.

Forexample,betweenJuly2020andApril2021,BaldwinacquiredfoursmallMedicareinsurancefirmsinWashington

State.

1Webelievethisestimateisconservative.Forsimplicity,ourcalculationsdonotaccountforoursuspicionthatBaldwinacquiredtheseagenciesatahighermultiplethantheindustryaverage,anoverpaymentwhichwebelievecouldalsobeaformofbackdoorcommissionpayment.Ifadditionaladjustmentsweremadetoaccountfortheinflatedvaluationoftheacquirees,ourcalculationswouldsuggestthatBaldwin’sadjustedEBITDAandoperatingcashflowswereinflatedbysubstantiallymorethan50%and252%,respectively,sinceFY2020.

4

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

BaldwinWashingtonStateAcquisitions

Date

CompanyName

Operatingas

Business

Revenue($m)

7/31/2020FletcherFinancialGroup,IncMedicare2.3

3/1/2021

RileyFinancial,Inc.

MedicareHelpNow

Medicare

1.5

4/1/2021

TimAltman,Inc.

OnlyMedicareSolutions

Medicare

1

4/30/2021

Seniors’InsuranceServicesofWashington,Inc.

Seniors’InsuranceServices

Medicare

0.9

Source:BaldwinPublicFilingsandPressReleases

InWashingtonState,insuranceagenciesandcarriersreporttheiraffiliationswithagentsinapublicdatabase.FilingsfromWashingtonState’sinsuranceregulatorshowthatowners/agentsregisteredtoworkforthefourfirmsacquiredbyBaldwinwerealreadyregisteredtorepresentoneoftheCompany’ssubsidiariesmonthspriortotheacquisition.Inotherwords,staterecordssuggestthatBaldwinacquiredtheseagenciesfromitsownagents.

.Example1:TimAltman,Inc.–AcquiredbyBaldwinonApril1,2021

InApril2021,BaldwinacquiredTimAltman,Inc.foranundisclosedamount.Thefirmisasmallbrokeroperatedunderthename“OnlyMedicareSolutions”withannualrevenueofapproximately$1milliondollars.AccordingtotheWashingtonStateOfficeoftheInsuranceCommissioner’sonlinedatabase(“WashingtonInsuranceDatabase”),TimAltman,Inc.onlyhadoneregisteredagent,TimAltmanhimself.2

Source:WashingtonStateOfficeoftheInsuranceCommissioner

YetitappearsthatAltmanwasaBaldwinagentforoneyearpriortotheacquisition.Accordingtothesamedatabase,TimAltmanwasalreadyanagentofBRPInsuranceIII,LLC,aBaldwinsubsidiary,startinginApril2020.Inotherwords,thestateinsurancerecordsindicatethatTimAltmanworkedfortheCompanyoneyearbeforeBaldwinacquiredhisinsuranceagency.

TIMA.ALTMAN

Source:WashingtonStateOfficeoftheInsuranceCommissioner

2TheWashingtonInsuranceDatabaseonlygoesbacktwoyearsinthecaseofretiredagents,soTimAltman,Inc.mayhavehadmoreagentsatthetimewhohavenolongerworkedattheagency.

5

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

WecalledtheWashingtonStateOfficeoftheInsuranceCommissionertoconfirmthefilingdatesforTimAltman’saffiliationwithBaldwin.RepresentativesoftheCommissioner’sofficeconfirmedthatTimAltman’saffiliationdateslistedontheonlinedatabaseareaccurateandnotbackdated.

Putsimply,webelievethattheWashingtonstateinsurancerecordsindicatethatBaldwinacquiredtheinsuranceagencyofoneitsownagentswhowasalreadyworkingfortheCompany.Butthisisnottheonlyexample.

.Example2:Seniors’InsuranceServicesofWashingtonInc.–AcquiredbyBaldwinonApril30,2021

BaldwinalsoacquiredSeniors’InsuranceServicesofWashingtonInc.(“SIS”)inApril2021.AccordingtoLinkedIn,SISisownedbyRonSanford.

Source:GoogleMaps

AccordingtotheWashingtonInsuranceDatabase,RonSanfordwasalsoregisteredasanagentforBRPInsuranceIII,LLC,oneyearbeforeBaldwinpurportedlyacquiredSIS.Whenwecalled,arepresentativefortheCommissioner’sofficeconfirmedthedateforRonSanford’saffiliation,meaninghewasofficiallyregisteredasaninsuranceagentforBaldwinayearbeforeBaldwinacquiredhisagency.

Source:LinkedIn,WashingtonStateOfficeoftheInsuranceCommissionerTheWashingtonregulatorydatabaseshowsthatSIShadfiveagents.

SENIORSINSURANCESERVIcesoFWASHINGONINC

Source:WashingtonStateOfficeoftheInsuranceCommissioner

6

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

AlmostalltheseagentsregisteredwithWashingtonStatetorepresentBRPInsuranceIII,LLCinearly2020.Inotherwords,agentsatSISalreadyworkedfortheCompanyayearbeforeBaldwinacquiredthesmallagency.3

HEIDIJ.ERICKSON

Source:WashingtonStateOfficeoftheInsuranceCommissioner

JenniferLorrainepotter

Source:WashingtonStateOfficeoftheInsuranceCommissioner

TIMOTHYF.SANFORD

Source:WashingtonStateOfficeoftheInsuranceCommissioner.Example#3:RileyFinancialInc.-AcquiredbyBaldwinonMarch1,2021

InMarch2021,BaldwinacquiredRileyFinancial,operatingas“MedicareHelpNow,”amom-and-popinsurancebrokerinWashingtonstatewithonly$1.5millioninrevenue.

3AllofSIS’fiveagentsareentitledtorepresentBaldwin.FourofthemwereregisteredwithBaldwininApril2020,ayearpriortotheacquisition.TheonlyexceptionisJohnPotter,whoonlyregisteredwithBaldwininOctober2021,afterthetransaction.

7

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

Source:YahooFinance,February17,2021

Baldwinacquiredthissmallfirmfor$4.5millionofcashand~$1millionworthofstock,withafurtherpotentialearnoutof$2.5million.AccordingtotheWashingtonStateInsuranceCommissioner’soffice,twoagentscouldrepresentRileyFinancial,ErikNelsonandJamesTeagueJr.

Source:WashingtonStateOfficeoftheInsuranceCommissioner

RecordsindicatethatthesetwoagentsstartedtorepresentBaldwininMayandAugust2020,respectively,monthsbeforeBaldwinpurportedlyacquiredtheirbusiness.

ErikToddNelson

Source:WashingtonStateOfficeoftheInsuranceCommissioner

JAMESE.TEAGUEJR

Source:WashingtonStateOfficeoftheInsuranceCommissioner

OfthefiveacquisitionsinthestateofWashington,staterecordsshowinfourofthefivetransactions,theagentswerealreadyregisteredtoBaldwinmonths(ifnotayear)beforeBaldwinacquiredtheirsmallagencies.InplainEnglish,itappearsthatBaldwinwasbuyingtheagenciesofagentsthatalreadyworkedforthem.

OnlytheWashingtonStateOfficeoftheInsuranceCommissionerprovidesgranularagentaffiliationdatanecessarytoconfirmthissuspicion.Butgiventhatthispatternoccurredin80%oftheacquisitionsofWashingtonbasedagencies,wethinkitisfairtoassumethatthispracticewasfarmorewidespread.

8

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

b.CommissionsinDisguise

Commissionpaymentstoagentsaretraditionallyexpensedasoperatingcostsandrunthroughtheincomestatement,reducingEBITDAandnetincome.ButwhenBaldwinacquirestheseagencies,itinsteadpaysearnoutstotheagentsunderthetermsoftheacquisition.TheCompanyrecordsacontingentearnoutliabilityrepresentingthefairvalueoftheseestimatedpaymentsonitsbalancesheet,whicharereducedovertimeasearnoutpaymentsaremadetothesellers.Critically,earnoutpayments,whichwethinkarecommissionsindisguise,donotflowthroughtheincomestatement.Instead,theearnoutpayments,whenmade,arerecordedasoperatingandfinancingcashoutflows.

CommissionsPaidtoExternalAgentsareNormallyRecordedasOperatingExpenses

Source:Baldwin202310-K

CommissionsPaidtoAcquiredAgenciesareRecordedasOperatingandFinancingCashOutflows

Source:Baldwin202310-K

Byacquiringtheseagencies,Baldwintransformscommissionpaymentsthatwouldhavenormallyrunthroughtheincomestatementintoearnoutpaymentsrecordedonthecashflowstatement,partiallywithinoperatingactivitiesandpartiallywithinfinancingactivities.Ineffect,weseetheseacquisitionsasaformoffinancialengineeringthatartificiallyinflatenetincome,adjustedEBITDA,andoperatingcashflow.4

4Baldwindoesincludealineitemwithinitsoperatingcostsentitled“Changeinfairvalueofcontingentconsideration.”Thisrepresentsonlythechangeinfutureestimatedearnoutpayments,accordingtotheCompany’smethodologyforupdatingthevalueofthecontingentconsiderationliabilityonitsbalancesheet.Butcontingentearnoutsrecordedatthetimeoftheacquisitionare

9

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

ImpactofBaldwin’sFinancialEngineering

Source:BOCAnalysisofBaldwin'sAccountingPolicies

WhenweinterviewedaformerexecutivefromanagencyacquiredbyBaldwin,hestatedthatthecontingentearnoutwastiedtothegrowthofnewbusiness.Inotherwords,itappearsstructuredjustlikeacommissionpayment.

“ThereisalwaysagrowthcomponentthatyouhavetogrowXamountoverathreetofiveyearperiod.…Andthatisnewbusinessgrowth.”

-FormerManagementfromanagencyacquiredbyBaldwin

Importantly,Baldwinappearstobeamajoroutlierinthemagnitudeoftheseearnoutpayments,suggestingthatithasbeenmoreaggressivethanpeersinshiftingpaymentstoagentsfromitsincomestatementtoitsbalancesheet.Whilecompetitorsalsoperformacquisitionsandreportearnoutpayments,earnoutpaymentsforthepeergroupaverage2-5%ofadjustedEBITDAsinceFY20.5Bycomparison,Baldwin’searnoutpaymentsaverage32%ofadjustedEBITDAoverthesametimeperiod,representingamuchgreatershiftingofwould-beexpensesoutoftheincomestatementthanitspeergroup.

EarnoutPaymentsasaPercentageofAdjustedEBITDAComparison

FY20

FY21

FY22

FY23

1H24

Cumulative

Brown&Brown

4%

8%

9%

8%

11%

8%

ArthurJ.Gallagher

3%

8%

7%

6%

7%

6%

WillisTowersWatson

0%

1%

1%

1%

0%

1%

Marsh&McLennan

2%

2%

1%

3%

4%

2%

Average

2%

5%

5%

4%

5%

4%

Baldwin

7%

11%

50%

21%

45%

32%

Source:CompaniesPublicFilings

WebelievethattheundisclosedrelatedpartynatureofBaldwin’stransactions(e.g.,rollingupinsuranceagenciesofagentsthatalreadyworkforBaldwin),constitutesaparticularlyegregiousformoffinancialengineeringwhichsetsBaldwin’sacquisitionsapartfromthepeergroup.

Yetitiscriticaltonotethatregardlessofwhethertheacquisitionsareindeedrelated-partytransactions,rollingupinsuranceagenciesandshiftingcommissionexpensesontothebalancesheetisaformoffinancialalchemy.When

immediatelyreportedasaliability,andactualearnoutpaymentsarerecordedonthecashflowstatement.Accordingly,theyarenotexpensedontheincomestatementanddonotreducenetincomeoradjustedEBITDA.

5SelectedbyBaldwinandlistedonitsinvestorpresentationinJune2024.

10

BaldwinInsuranceGroup,Inc.│NYSE:BWIN

doneatthescaleatwhichBaldwinisrollingupagencies,webelieveitmateriallymisleadsinvestorsabouttheunderlyingprofitabilityandcashgenerationofthebusiness.

c.FinancialEngineeringInflatesReportedCashFlowsandUnderstatesReportedLosses

Baldwinisalreadyheavilyleveredandhasreportedstaggeringpre-taxlosseseveryyearsinceitsIPO.Webelievethatwithoutthefinancialengineeringtomaskagentcommissionsascontingentearnoutliabilities,suchlosseswouldhavebeenevenmoresevere.WealsobelievethatBaldwin’sfinancialengineeringinflatesoperatingcashflows,ascontingentpaymentsassociatedwithsuchacquisitionsarecategorizedinpartascashflowsfromfinancing.

Wecalculate,intotal,theCompanypaid$246millionincontingentearnoutsoverthepastfourandahalffiscalyears.BaldwinPaid$246MillioninContingentEarnouts

$m

FY20

FY21

FY22

FY23

LTM1H24

Cumulative

SettledContingentearnoutliabilities

OperatingCashFlows

PaymentofContingentEarnout

ConsiderationinExcessofPurchasePriceAccrual

FinancingCashFlows

PaymentofContingentEarnout

ConsiderationuptoAmountofPurchasePriceAccrual

(1.7)

(4.8)

(49.9)

(24.3)

(38.6)

(101.2)

(1.2)

(7.7)

(48.3)

(27.9)

(80.3)

(145.1)

ContingentEarnoutsettledbyCash

(2.9)

(12.5)

(98.2)

(52.3)

(118.8)

(246.3)

Source:BaldwinPublicFilings

Webelievethat,withoutfinancialengineering,Baldwin’soperatinglosseswouldbe$146millionoverthepastfourandahalfyears,insteadofthe$76millionlossreportedtoinvestors.ThisreflectsouradditionofBaldwin’s$246millionofreportedearnoutpaymentsbackintotheincomestatementasanoperatingexpense.Wealsoremovethe$177