The Motley Fool

Cover-More Group Ltd announces $138 million Travelex acquisition

This morning travel insurance business Cover-More Group Ltd (ASX: CVO) announced the $138 million acquisition of US-based Travelex Insurance Services as it attempts to deepen its North American footprint.

Travelex is reportedly the third-largest retail travel insurer in the US market and Cover-More will fund the deal via a $73.3 million capital raising that will be offered to both retail and institutional investors. The balance of the $72.7 million required to complete the deal will come from bank debt facilities, with Cover-More carrying an expected pro forma net debt to EBITDA ratio of 2x if the deal is completed.

Cover-More advised that on a pro forma basis it expects Travelex Insurance to generate EBITDA of US$9.5 million for the year ending June 30 2016. That places the purchase price of US$105 million on a valuation around 11x the annual pro forma EBITDA of Travelex Insurance. The company expects the deal to be low-single-digit earnings per share accretive with $0.5 million to $1.5 million in cost savings to be extracted in future years.

Cover-More shares have slumped some 35% over the course of 2016 after the group reported declining earnings and margins for FY16 and today updated the market that it expects FY17 EBITDA in the range of $48.1 million to $52.9 million. This would be around a 10% lift over the $44.6 million posted in FY16.

Travel insurance is a competitive space with other operators like Flight Centre Travel Group Ltd (ASX: FLT), Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN) all having subsidiary operations that offer products to consumers. Cover-More Group than looks to be operating in a competitive environment with plenty of work ahead to successfully integrate its proposed acquisition.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.