Proposed Acquisition of Alexander Forbes Short-Term Insurance Business in South Africa
Momentum Metropolitan Holdings Limited
(formerly MMI Holdings Limited)
Incorporated in the Republic of South Africa
Registration number 2000/031756/06
ISIN Code: ZAE000269890
JSE share code: MTM
NSX share code: MMT
(“Momentum Metropolitan” or “Group”)
PROPOSED ACQUISITION OF ALEXANDER FORBES SHORT-TERM INSURANCE BUSINESS IN SOUTH AFRICA
The Board of Momentum Metropolitan is pleased to announce that the Group, through its wholly-owned subsidiary,
Momentum Metropolitan Strategic Investments Proprietary Limited (“MMSI”), has entered into an agreement
(“Sale and Purchase Agreement”) to acquire the Alexander Forbes Short-term Insurance (“AFI”) business, directly
held through Alexander Forbes Limited (“Seller”), an indirect subsidiary of Alexander Forbes Group Holdings Limited,
an entity listed on the JSE (“Proposed Transaction”).
2. RATIONALE FOR THE PROPOSED TRANSACTION
Momentum Metropolitan has identified short-term insurance as an industry segment into which the Group will
invest capital to support its growth aspirations. This view has been strengthened by the strong performance over
recent financial years from our existing short-term insurance operations, Guardrisk and Momentum Short-term
Insurance (“MSTI”). This transaction accelerates and broadens the sustainable growth plans for this market segment.
AFI is a well-run insurance business with a stable and experienced management team. We believe that there is a
strong cultural fit with the broader Momentum Metropolitan business. The Group’s targeted end-state is an
integrated retail short-term insurance unit, combining MSTI and AFI. The integrated business will trade under the
Momentum brand, using one insurance license.
AFI and MSTI are complementary businesses in many respects, including their target markets, product sets and
customer value propositions. AFI brings with it a culture of excellent service and an established, specialised short-
term insurance tied distribution force. MSTI will complement the combined business through its scientific
underwriting and pricing capabilities and its modern insurance administration platform. Collectively, the businesses
will achieve immediate scale, unlocking cost efficiency over time. It will also extract synergies in areas such as
reinsurance, claims handling and procurement.
The Group plans a phased integration of AFI into MSTI and expect the process to be relatively smooth – in the same
manner as when Guardrisk was acquired five years ago. This process will start after obtaining final approval from all
relevant regulatory bodies.
3. PARTICULARS OF THE PROPOSED TRANSACTION
3.1 OVERVIEW OF THE BUSINESS
AFI targets the middle to high income market in South Africa, offering personal and commercial short-term insurance
products. AFI’s business model focuses on personalised sales and superior client service. This has resulted in an in-
force book that tilts towards high-net worth individuals and experiences better than industry average persistency.
3.2 OVERVIEW OF THE TRANSACTION AND PURCHASE CONSIDERATION
The assets to be purchased from the Seller and its related companies include:
- 100% of the shares in Alexander Forbes Administration Services Proprietary Limited, Alexander Forbes
Direct Proprietary Limited and Alexander Forbes Insurance Company Limited;
- The information technology software which supports AFI; and
- The trademarks specific to AFI
for a total purchase consideration for R1 938 million (“Base Price”).
The rights, benefits and advantages of the business will accrue to Momentum Metropolitan from 1 April 2019 in
terms of a ‘locked box structure’. In the event of any contractually non-permitted distributions after 1 April 2019,
the Base Price will be adjusted downwards (“Adjusted Price”). The Adjusted Price will in turn be escalated at a rate
of 6% per annum, nominal annually compounded monthly in arrears, from 1 April 2019 until finalisation of the
transaction (“Final Price”). The maximum Final Price, if closing only occurs on the last date for the conditions
precedent to be met (31 March 2020), would equate to R2 055 million. The Transaction is however expected to be
implemented towards the end of 2019, assuming the necessary approvals are obtained timeously.
The transaction will close once all conditions precedent are fulfilled and the Final Price is determined in accordance
with the relevant transaction agreements. The Final Price will be settled in cash and is guaranteed by Momentum
Metropolitan on behalf of its subsidiary, MMSI, which will conclude the Proposed Transaction.
Additional ancillary agreements include a brand license agreement and transitional services agreement, applicable
for an interim period, to ensure and enable a smooth transition for the business, its clients and employees. The
transaction agreements include contractual undertakings normal for a transaction of this nature including
warranties, interim undertakings, non-compete undertakings and termination rights.
3.3 CONDITIONS PRECEDENT
The Proposed Transaction is subject to the following conditions:
- Approval from the Prudential Authority;
- Approval from the South African Competition Authorities;
- Obtaining of either a compliance certificate or a written exemption from the Takeover Regulation Panel in
respect of the transaction;
4. NET ASSET VALUE AND PROFITS ATTRIBUTABLE TO THE BUSINESS AS AT 31 MARCH 2019
AFI reported a profit after taxation for the year ended 31 March 2019 of R135 million. The net asset value of AFI as
at 31 March 2019 was R322 million.
The annual financial statements for the business were prepared in accordance with International Financial Reporting
Standards and the Companies Act 71 of 2008.
5. CATEGORISATION OF THE ACQUISITION
The Proposed Transaction is classified as a Category 2 transaction in terms of the Listings Requirements of JSE
The Group confirms, for purposes of paragraph 9.16 of the JSE Listings Requirements that nothing in the
constitutional documents of the AFI entities will frustrate or relieve the Group from compliance with the JSE Listings
25 July 2019
Investec Bank Limited
Sponsor in South Africa
Merrill Lynch South Africa (Pty) Limited
Sponsor in Namibia
Simonis Storm Securities (Pty) Limited
Date: 25/07/2019 03:00:00
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