AUB Enters UK Market With A$880M Lloyds Insurance Broker Acquisition

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AUB Enters UK Market With A$880M Lloyds Insurance Broker Acquisition

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  • Purchase price of A$880 M + potential additional deferred consideration of $176 M
  • Purchase price represents 9 times FY22 EBITDA, post-synergies  
  • Acquisition to boost annual Gross Written Premium by A$3.6 B
  • Acquisition price implies a 30 percent accretion in Underlying EPS for CY22, including synergies
  • $350 M share issue at $19.50/share to fund acquisition + $675 M new debt facility
  • FY22 guidance reaffirmed at $72-$74 million, up 20 percent on FY21 from continuing operations

AUB Group Limited (‘AUB‘ or the ‘Group‘) is an ASX200 company comprising insurance brokers and underwriting agencies operating from 500 locations across Australia and New Zealand, employing 3000 people, servicing 850,000 clients and writing $4 billion in insurance premiums annually. The Group’s insurance broking business core focus is Small and Medium Enterprise (SME) businesses.   The Group has recently expanded into the UK insurance market with the purchase of the sixth largest wholesale broker in the Lloyd’s marketplace.

AUB adopts an equity-based model where the owners remain directly responsible for the day-to-day operations. Under the model, each individual business can leverage the scale, infrastructure and operational capability of the Group in servicing client needs.

Acquisition of leading Lloyd’s wholesale insurance broker

AUB has today announced the acquisition of Tysers, a leading Lloyds wholesale broker for A$880 million, with potential additional deferred consideration of up to $176 million, dependent on the achievement of agreed revenue targets. Based in London, Tysers is the sixth largest wholesale broker in the Lloyd’s marketplace, writing A$3.6 billion in Gross Written Premium annually, with 1100 employees. Lloyd’s is the world’s largest insurance market.

The purchase consideration implies a multiple of 12 times Enterprise Value / FY22 EBITDA (pre-synergies) and approximately 9 times FY22 EBITDA (post synergies). Synergies are estimated at A$25 million annually, derived from cost rationalisation and margin enhancement on existing premiums, and achievable in full after 18 months. These estimates translate to a 30 percent accretion in Underlying Earnings Per Share on a Calendar Year 2022 basis, including full year run-rate of synergies, but excluding one-off transaction and implementation costs.

The acquisition supports AUB’s strong competitive market position by enabling it to design and deliver new, differentiated and exclusive products to its existing broker and agency network and establish new agencies and secure Lloyd’s binders. The acquisition will assist AUB clients with international placement needs.

$350 million equity raising

The acquisition will be funded by a A$350 million fully underwritten equity raising and a new A$675 million multi-currency debt facility. The new shares will be issued at $19.50, being a 12 percent discount to the last closing price before the capital raising announcement. New shares will rank equally with existing shares from the issue date.

The new debt facility will replace the existing A$250 million facility, leaving the Group with $74 million of debt headroom and a debt leverage ratio of 2.8 times.

FY22 Guidance reaffirmed

AUB has affirmed Underlying Net Profit After Tax of between $72 and $74 million. This represents 19 -22 percent growth over FY21 continuing operations. Approximately $9.5 million or 76 percent of this NPAT growth is estimated to be sourced organically from continuing operations.

AUB fore-sees favourable operating conditions and continues to target a dividend pay-out ratio of 50-70 percent, paying fully franked dividends on new and existing shares.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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