Momentum deal will double its customers in one stroke
Alexander Forbes agrees to sell its short-term insurance business, which should unlock some value for shareholders
Financial services group Momentum Metropolitan Holdings will buy Alexander Forbes’s short-term unit for about R2bn. The acquisition is expected to immediately double Momentum’s retail client base.
Alexander Forbes short-term insurance (AFI) will be fully integrated into Momentum’s insurance unit and is expected to boost profitability of the business in a market experiencing subdued growth, Herman Schoeman, CEO of Momentum’s nonlife insurance portfolio, said on Thursday.
The acquisition follows that of insurer Guardrisk, also from Alexander Forbes, in 2014. While AFI and Momentum’s short-term unit will be merged, Guardrisk will continue to operate as a specialist insurer, Momentum said.
AFI targets the middle- to high-income market in SA, offering personal and commercial short-term insurance. It reported R135m profit after taxation for the year to end-March.
In March, Alexander Forbes announced a new strategy that will steer the company in a different direction from one envisaged by former CEO Andrew Darfoor, who was axed in September 2018. The strategy will enable Alexander Forbes to scale back on retail operations that serve individual customers to focus predominantly on institutions such as pension funds.
The acquisition of AFI should expand Momentum’s value offering, and will likely also please Alexander Forbes shareholders, said Capricraft Investment Partners analyst Drikus Combrinck. “Alexander Forbes’s investors are probably looking for a bit more than that, but this is a good start,” Combrinck said.
At almost R2bn, the price for AFI does look attractive, Protea Capital Management CEO Jean Pierre Verster said.
David Talpert, speciality finance analyst at Avior Capital Markets, said the sale price is ahead of the R1.2bn at which Avior had valued the unit, and it should unlock some value for Alexander Forbes shareholders. “The proceeds and release of excess regulatory capital increases the possibility of Forbes paying another special dividend,” Talpert said.
The transaction is expected to be implemented towards end-2019, and is subject to regulatory approval.
The proposed base price of R1.938bn covers 100% of the shares of AFI, software that supports AFI, and any other related trademarks.
Accounting for any other adjustments, the maximum final price could equate to R2.055bn, Momentum said.
Momentum CEO Hillie Meyer said the group is embarking on the acquisition to boost growth of its short-term insurance interests. “This transaction now makes the group a significant player in the short-term insurance market,” Meyer said.
With Londiwe Buthulezi