The market is swinging into action this morning, with one exception among stocks inside the S&P/ASX 200 Index (ASX: XJO).
You'd be forgiven for not noticing. The company isn't in the same leagues as CSL Ltd (ASX: CSL) or Woolworths Group Ltd (ASX: WOW). However, at a market capitalisation of $3.2 billion, this arguably 'under-the-radar' company is hardly any small fry either.
If you haven't already guessed, I'm talking about the insurance broker and underwriting agency AUB Group Ltd (ASX: AUB). Shares in the company are locked at $29.46 this morning after AUB requested a trading halt ahead of the morning bell.
It turns out that AUB Group has some big news to share.
Acquisition to fill the gaps
AUB Group is ready to take its next bite of the merger and acquisition pie.
A year and a half after engulfing Tysers, AUB is deploying capital again to continue its growth through acquisition strategy. This time, a Melbourne-based specialist underwriting agency is at the centre of attention.
Pacific Indemnity, founded in 2015 by Jun Acance, has only been in business for eight and a half years. However, the professional indemnity-focused business conducted $177 million in gross written premiums in FY23.
The ASX 200 stock is acquiring 70% of the equity in Pacific Indemnity for $105 million. The offer values the acquisition target at an enterprise value of $192 million, giving it an enterprise value to FY23 earnings before interest and taxes multiple of 13 times.
A further $35 million is on the table, depending on the performance of Pacific Indemnity post-acquisition.
The rationale behind the deal is that Pacific Indemnity will cover gaps in AUB Group's existing capabilities. Furthermore, the company is said to be achieving high growth and margins, making it an attractive add-on for AUB.
Detailing the logic further, AUB Group CEO and managing director Mike Emmett states:
The acquisition of Pacific Indemnity will add scale, diversify our capabilities, and expand our expertise in financial lines. The acquisition also presents opportunities for mutual benefits across the business, through collaboration between Pacific Indemnity and the broader AUB Group.
Completion of the 70% stake is slated for 1 July 2024.
Tapping cash for this ASX 200 stock
AUB Group is also announcing an equity raising to fund the Pacific Indemnity deal.
The company will tap $200 million via an institutional placement, covering the total outlay for the 70% stake. In fact, $95 million of the placement is earmarked for 'cash to support M&A pipeline and cost of equity raising'.
Additionally, AUB Group will contemplate offering a share purchase plan for up to $25 million worth of new shares.
