The AUB Group Ltd (ASX: AUB) share price won't be trading till tomorrow as it undertakes a capital raise to fund an $880 million acquisition.
The insurance broker called for the trading halt and announced the takeover of Tysers. The London-based target is the sixth-largest wholesale broker in the Lloyd's marketplace with $3.6 billion in annual gross premiums.
The cash and scrip offer will be partly funded through a fully underwritten $350 million equity raising. The raising is made up of a $71 million share placement to institutional investors.
The balance will come via a 1-for-5.2 pro rata accelerated non-renounceable entitlement offer to existing shareholders.
AUB shares on watch amid cash-scrip acquisition
Tysers owners, Odyssey Investment Partners, will be given $176 million worth of AUB shares as part of the transaction. The shares will be escrowed for 24-months.
AUB will also take on a new $675 million new debt facility to replace its existing $250 million facility. This will leave the company with $74 million in unused debt post the acquisition.
Strategic rationale
Management says that the acquisition is consistent with its strategy to expand its international offering, build economies of scale and capture more of the brokering value chain.
AUB added that Tysers will strengthen its competitive position. The target's specialist capabilities will enable AUB to design and offer market-leading products for AUB's broker and agency network and to enhance the ability to establish new agencies and secure Lloyd's binders.
AUB acquisition could hit $1.06 billion
The $880 million offer price could go up by another $176 million (earnout) if Tyser hits certain targets. But ignoring the earnout, the price tag for Tysers reflects a circa 12 times enterprise value to FY22 pro forma earnings before interest, tax, depreciation and amortisation (EBITDA).
However, if you include the forecast annual run-rate synergies from the merger of around $25 million, the multiple drops to around 9 times.
In other words, AUB believes the acquisition will lift its underlying earnings per share by 30% with the synergies.
The synergy assumptions are made up for cost savings and improving margins on current premiums to be fully realised after 18 months.
Sale of assets
In the wake of the acquisition, AUB intends to sell a 50% stake in Tysers' UK Retail division to PSC Insurance Group Ltd (ASX: PSI). PSC, a 50/50 joint venture partner with AUB, will purchase the asset on the same multiples and commercial terms.
"Lloyd's is the largest insurance market in the world. Tysers provides AUB Group the ability to access a diverse range of risks and insurance types for our clients and broker networks in Australia and New Zealand whilst also gaining the capability to accelerate the establishment of new agencies in these markets," said AUB chief executive Mike Emmett.
"Clive Buesnel, Tysers CEO, is a highly respected insurance executive in the Lloyds and London market, and we are delighted to welcome him and the Tysers team to the AUB family as we embark on a new chapter for both AUB Group and Tysers."
