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.
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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.