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Acquisition of up to 29.9% in UK-based and listed short-term insurer
RAND MERCHANT INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2010/005770/06)
ISIN: ZAE000210688
JSE ordinary share code: RMI
("RMI")
ACQUISITION OF UP TO 29.9% IN UK-BASED AND LISTED SHORT-TERM INSURER
1. Introduction
Shareholders of RMI (“RMI Shareholders”) are advised that RMI has
entered into definitive agreements to acquire up to 29.9% of the
issued share capital of Hastings Group Holdings plc (“Hastings” or
the “Group”) (“Acquisition”) at a price per share (depending on the
closing dates) between 248 pence and 255 pence, for an aggregate
cash consideration (depending on the closing dates) of between
approximately GBP487.3 million and GBP499.5 million (“Acquisition
Consideration”). RMI will become the single largest shareholder of
Hastings post implementation of the Acquisition.
This Acquisition is consistent with RMI’s previously articulated
strategy that, in addition to its role as an active and value-adding
shareholder in its existing portfolio companies, RMI intends to
optimise, diversify and modernise its investment portfolio through
investments across a broad spectrum of scale and lifecycles of
financial services businesses. The Acquisition meets RMI’s
objectives of diversifying geographically, adding a significant
traditional financial services business alongside its existing
portfolio in partnership with a high quality and entrepreneurial
management team.
2. Overview of Hastings
Hastings began operations in 1997 and the ordinary shares in
Hastings were admitted to the Premium listing segment of the
Official List of the Financial Conduct Authority of the United
Kingdom (“FCA”) and to trading on the Main Market for listed
securities of the London Stock Exchange (“LSE”) on 15 October 2015.
Hastings is a fast-growing agile digital general insurance provider
operating principally in the United Kingdom (“UK”) motor market. It
provides private car and other forms of personal insurance cover
(home, van and bike). In recent years, the Group has achieved growth
within its chosen insurance verticals through a combination of
strategic focus, optimised digital distribution, superior data
generation and utilisation, sophisticated risk selection and
advanced fraud detection and claims management.
Hastings is led by a highly regarded, experienced and
entrepreneurial management team that drives a consumer-centric ethos
and culture.
As at 30 September 2016, Hastings had a 6.4% share of the UK private
car insurance market and just under 2.3 million live customer
policies (“LCP”) (having grown LCP by 17% compound annual growth
rate (“CAGR”) over the last three financial years). The Group’s
success in capturing market share has been combined with
consistently strong underwriting performance and growing retail
profitability, with a CAGR of 21.5% in operating profit between 2012
and 2015. Group operating profit for the six months ended 30 June
2016 was GBP70.8 million (for the year ended 31 December 2015:
£126.1 million; for the year ended 31 December 2014: GBP103.5
million and for the year ended 31 December 2013: GBP90.1 million).
The Group operates as an integrated provider through two principal
operating entities, Hastings Insurance Services Limited (“HISL”)
which is regulated by the FCA in the UK and Advantage Insurance
Company Limited (“Advantage”), which is based in Gibraltar and
regulated by the Financial Services Commission (“FSC”).
HISL is one of the UK’s fastest growing personal lines insurance
intermediaries. It operates across a number of products, the largest
being private car insurance, which are distributed through a number
of brands including Hastings Direct, Hastings Premier, Hastings
Essential, People’s Choice and InsurePink.HISL has f ull
flexibility and responsibility for managing the relationships with
the Group’s customers, including policy sales, customer service and
customer retention. The Group’s delivery systems are designed for
Price Comparison Websites (“PCW”) and direct distribution. PCWs have
in recent years become the most important distribution channel for
customers seeking to purchase a new private car insurance policy in
the UK market. Approximately 88% of the Group’s new business is
generated through the PCW channel. The Group has achieved a
significant share of new business private motor insurance sales on
PCWs (11.0% in the year ended 31 December 2015), strong and balanced
distribution across all the major PCWs and superior customer
retention rates.
Advantage is responsible for the Group’s risk selection, underlying
technical policy pricing, fraud management, reserving and claims
handling. Advantage manages risk appetite through adopting a
sophisticated data-driven approach to risk selection and risk
pricing, optimised for the PCW market place, resulting in a high-
quality underwriting portfolio. Advantage’s primary goal is the
delivery of consistent underwriting profitability.
The Group has a market capitalisation of £1.46 billion (as at 13
December 2016), employs 2,700 people and is headquartered in
Bexhill-on-Sea with offices in Newmarket, Leicester and Gibraltar.
Further information on Hastings is available at
https://www.hastingsplc.com/.
3. Rationale for the Acquisition
RMI has a stated strategy to utilise its current balance sheet
gearing capacity to add to its existing portfolio of significant
stakes in financial services companies. In addition to exploring
opportunities to invest in early-stage businesses, RMI has
previously indicated that it will seek to add a further large
investment (fourth pillar) to its portfolio alongside its existing
three large holdings in Discovery Limited, MMI Holdings Limited and
OUTsurance Holdings Limited (“OUTsurance”).
The Acquisition is consistent with RMI’s current investment mandate
and style which focuses on high-quality companies offering long-term
growth prospects which are led by empowered and aligned management
teams. Furthermore, the Acquisition facilitates diversification of
the portfolio into a new geography and growing market segments.
RMI has an 84% interest in OUTsurance. OUTsurance and Hastings
employ similar business models specifically in relation to their
dynamic and analytical approaches to risk underwriting and the use
of modern direct distribution channels. OUTsurance and Hastings have
identified areas of potential collaboration that may include the
sharing of best practices and learnings between the businesses, as
appropriate.
4. Terms of the Acquisition
4.1. RMI (through Main Street 1353 Proprietary Limited, a wholly-
owned subsidiary of RMI) will acquire up to 29.9% (potentially
in three tranches as detailed in paragraph 7 below) directly
from the Selling Shareholders (defined in paragraph 8 below)
at a price per share (depending on the closing dates) between
248 pence and 255 pence, for an aggregate Acquisition
Consideration (depending on closing dates) of between
approximately GBP487.3 million and GBP499.5 million.
4.2. RMI will fund the Acquisition through a debt facility, which
will be fully-underwritten by Rand Merchant Bank (A division
of FirstRand Bank Limited).
4.3. RMI has also entered into a relationship agreement with
Hastings (“Relationship Agreement”). Under the terms of the
Relationship Agreement, RMI will be able to nominate for
appointment a director to the board of Hastings (“Hastings
Board”) and appoint an observer to the Hastings Board and to
all standing committees of the Hastings Board (other than the
nominations committee) for so long as RMI holds a direct or
indirect interest of between 15% and 29.9% in the ordinary
share capital of Hastings. The first such appointees will be
Herman Bosman, CEO of RMI as the director and Willem Roos, CEO
of OUTsurance as the observer. The Relationship Agreement will
remain in force for so long as RMI holds 10% or more of
Hastings’ issued shares.
5. Net assets and profits of Hastings
The reported net asset value of Hastings at 31 December 2015 and 30
June 2016 was GBP503.2 million and GBP536.6 million, respectively.
Hastings’ reported adjusted profit after tax as per its published
financial statements for the year ended 31 December 2015 and the six
months ended 30 June 2016 was GBP76.2 million and GBP51.9 million,
respectively. The Group’s historical financial statements have been
prepared in accordance with International Financial Reporting
Standards.
6. Conditions precedent
The Acquisition is subject to the fulfilment or waiver (where
possible) of the following conditions precedent:
6.1. Regulatory approvals in South Africa, UK and Gibraltar, being:
6.1.1. Approval by the Financial Surveillance Department (“FSD”)
of the South African Reserve Bank;
6.1.2. Approval by the FCA; and
6.1.3. Approval by the FSC.
7. Effective Date
It is anticipated that the transfer of the shares and payment of the
Acquisition Consideration may occur in up to three tranches linked
to the timing of the receipt of the specific regulatory approvals,
namely from the FSD, FCA and FSC (as noted in paragraph 6 above).
The Acquisition is expected to become effective by no later than 30
April 2017.
The final aggregate Acquisition Consideration will be determined
with reference to a pre-agreed formula based on the timing of the
completion of each tranche of the Acquisition.
8. Identity of the Selling Shareholders
RMI’s interest in Hastings will be acquired from Hastings Investco
Limited (“InvestCo”) and certain individual shareholders. Investco
is a wholly-owned subsidiary of Hastings Holdco Limited, a company
controlled by Hastings A, L.P. (an entity which is indirectly owned
by The Goldman Sachs Group, Inc.), Keith Charlton and Edward
Fitzmaurice. At the close of business on 13 December 2016, Investco
held 337,626,576 ordinary shares in Hastings, equivalent to
approximately 51.4% of the entire ordinary share capital of
Hastings.
Investco and the individual shareholders are together referred to
herein as the “Selling Shareholders”.
The Selling Shareholders will collectively hold approximately 35.8%
of the issued share capital of Hastings after the implementation of
the Acquisition, assuming that they do not acquire or dispose of
ordinary shares in Hastings other than in connection with the
Acquisition.
9. JSE categorisation
The Acquisition is a category 2 transaction in terms of paragraph
9.5(a) of the JSE Limited Listings Requirements and therefore does
not require RMI Shareholder approval.
Sandton
14 December 2016
Financial adviser and Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Initial Mandated Lead Arranger, Bookrunner, Underwriter and Debt
Adviser
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal Adviser
Allen & Overy LLP
Financial and Commercial Due Diligence
PricewaterhouseCoopers LLP
Commercial Due Diligence
Oliver Wyman Limited
Date: 14/12/2016 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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