Steadfast have announced that they have entered into an agreement with QBE to purchase the insurers Australian agency businesses.
Steadfast will take 100% ownership of CHU Underwriting Agencies, Corporate Underwriting Agencies (also known as Body Corporate Brokers) and Underwriting Agencies of Australia for an up-front cash consideration of $290 million.
The final consideration is subject to an earn out based on 2015 and 2016 performance relative to 2014 and could range from $232 million to $348 million.
The sale is expected to be completed in late March 2015.
Steadfast also revealed that they have entered into an agreement to buy the Australian and New Zealand business IC Frith.
Robert Kelly, Managing Director & CEO of Steadfast, praised the aqcuisitons, calling them “natural” for the Steadfast business and heralded the creation of the "largest group of underwiting agencies in Australiasia."
“As the largest broker distributor of UAA and CHU products, Steadfast is the natural acquirer of these businesses. Furthermore, we are the natural acquirer of IC Frith, which was a founding member of the Steadfast Network in 1996. These Acquisitions meet our strict acquisition criteria in terms of fit, culture and EPS accretion for our shareholders.,” Kelly said.
“Acquiring the QBE agencies along with Calliden’s agencies has created the largest group of underwriting agencies in Australasia and brings tremendous scale and depth to Steadfast Underwriting Agencies. On a pro-forma basis, underwriting agencies will make a similar contribution to EBITA (pre Corporate Office expenses) as insurance broking. The pro-forma annual GWP from the group owned underwriting agencies will be approximately $765 million.
John Neal, QBE Group CEO, said of the deal: “We are pleased to progress another important step of our capital plan with the sale of the Australian agency businesses at a price we consider to be attractive for our shareholders.
Neal also revealed an exclusive 10 year deal has been signed between the companies for QBE to retain the underwriting business of the companies.
“An important element of the sale is the 10 year exclusive distribution agreement we have entered into with Steadfast to retain the underwriting business provided by the agencies. We look forward to continuing to work closely with Steadfast and CHU, CUA and UAA to further grow our program business.”
Kelly welcomed the companies to the Steadfast fold, noting that they expect minimal integration risk thanks to their close ties with each company.
“We welcome UAA, CHU, BCB and IC Frith to the Steadfast Network and anticipate minimal integration risk particularly with respect to the QBE agencies who we have been working with for close to 20 years and which are stand-alone businesses. We also look forward to strengthening our relationship with QBE who will remain the underwriter of both agencies.”
Steadfast will raise the funds for the major acquisition with a placement to institutional investors to raise approximately $89 million and an accelerated non-renounceable entitlement offer to raise approximately $211 million.
In its half yearly results, Steadfast announced a GWP raise of 6.1%, 4.6% of which came from new acquisitions, compared with last year.
The company also noted that Steadfast Underwriting Agencies GWP was up 76% to $101.4 million principally due to acquisitions. Steadfast expect this figure to grow by an additional $130 million thanks to the Calliden agencies purchased last year.