Chesnara PLC (LSE:CSN, FRA:6DE) has conditionally agreed to acquire Sanlam Life & Pensions UK Limited (SLP), a UK provider of insurance and long-term savings products.
The life assurance and pensions specialist is set to pay £39mln to Sanlam UK to acquire the business, which will add around £2.9bn of assets under administration and roughly 80,000 policies to Chesnara’s portfolio.
Chesnara said the cash consideration, which will come from the group’s existing debt facility, represents an attractive discount to SLP’s estimated economic value (EcV) of £48.1mln, providing an incremental EcV per share of 4p after deal costs.
Chesnara added that the proposed acquisition provides future material value creation potential from expense and capital synergies, real-world returns above risk-free and risk margin run-off that will add further EcV accretion over time.
The additional £5mln or so of cash generation a year that SLP will provide (under steady-state conditions) will support Chesnara’s progressive dividend strategy.
The SLP business will be integrated into Countrywide (LSE:CWD) Assured, Chesnara's UK platform, and will follow its tried and tested business model as a focused, closed-book consolidator. SLP will retain a commercial relationship with Sanlam Investments UK Limited for investment management.
“SLP's business is well aligned to Chesnara's acquisition strategy and will be integrated with our existing UK operations. We look forward to welcoming SLP's customers and staff to the Chesnara group and continuing to work with Sanlam on the management of SLP assets,” said John Deane, the chief executive officer of Chesnara.
“We believe that the market prospects for further acquisitions across our target markets remain positive and we continue to be confident in our ability to finance and execute such transactions on attractive terms for both vendors and our shareholders,” he added.
Jonathan Polin, the chief executive officer of Sanlam UK, said he was confident SLP would flourish under its new ownership and described Chesnara as “a highly respected and established life insurance and pensions consolidator”.
Peel Hunt, which rates Chesnara shares as a 'hold', said the acquisition, the group's first UK-based one for many years, offers "incremental value".
"CSN estimates the deal will initially add a modest 4p of economic value per share to the group post-deal costs (+1%), generate low double-digit IRR [internal rate of return] over time, and lift cash generation by £5m pa. CSN's solvency ratio would decline from 156% to 142% on a pro forma basis, albeit there should be a number of management actions and synergies that should boost the solvency ratio over time. Overall, we see this as an incrementally attractive deal that should sustain the cash releases from the core UK business and support the company's progressive dividend policy," the broker said.
Shares in Chesnara were up 1.5% at 306p.
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