Analysts at the London branch of RBC Capital Markets don’t expect Bain Capital’s potential £1.2bn buyout of Esure Group PLC (LON:ESUR) to spark a wave deal-making in the UK insurance sector.
Some of esure’s peers such as Admiral Group PLC (LON:ADM) and Direct Line Insurance Group PLC (LON:DLG) have seen their share prices rise today after esure revealed it was in “advanced discussions” with Bain regarding a possible takeover.
READ: esure ‘minded to recommend’ £1.2bn offer from Bain Capital
The FTSE 250 home and motor insurer said that it would be “minded to recommend” the bid to shareholders if the venture capital group followed through with the bid it has put on the table.
But RBC reckons there is “limited read-across” to other UK motor insurers as esure is a special case.
The bank notes that esure’s chairman and founder, Peter Wood, who still owns a 30% stake in the company, has reportedly been looking to cash in his shares for a little while now, which is not the case at other firms.
“We expect that other private equity firms plus a number of trade players will have considered making an offer, but we do not expect a counter offer to emerge,” read a note to clients.
“To us, there is limited read-across to the other UK motor insurers as this situation involves a motivated seller, a circumstance which we do not see at the other UK motor insurers.”
Major shareholder wants out
Given Wood’s reported eagerness to sell up and move on, RBC reckons a bid would likely succeed if the proposed 280p-a-share offer materialises.
The bank adds that the lack of alternative buyers, coupled with increasingly negative sector sentiment due to falling premiums, means this is probably the best offer esure shareholders can expect at the moment, even though it is below where the stock was this time last year.
“Although the offer still represents an undemanding multiple, given the backdrop in the UK motor market with softening prices plus a motivated seller of more than 30% of the stock, we believe this offer probably represents the best that esure can expect for now until the cycle turns.”
esure shares were up 32% to 268.6p in late afternoon trading.