CBL Corp to buy French insurance creator

CBL Corp [NZX: CBL] plans to buy a French insurance creator for 94 million euros, taking over its biggest customer in a deal expected to lift the insurer's earnings.

The Auckland-based company has been granted exclusivity to pursue the acquisition of Securities and Financial Solutions Europe SA (SFS), which would include IMS Expert Europe SA, a related claims management operation. The deal is subject to regulatory processes and consents and is expected to be wrapped up before October 31.

SFS is France's biggest specialist producer of construction sector insurance and, with the IMS claims management operation, generated normalised operating earnings of 8.2 million euros on revenue of 41 million euros in 2015.

"The strategic acquisition would assist in removing the distribution concentration risk SFS represented to CBL in being such a large client, and would further vertically integrate and consolidate CBL's market position in Europe, particularly in France.

"The acquisition would be expected to be earnings accretive in the first full year of CBL ownership," says managing director Peter Harris.

Reinsurance business originated from SFS accounted for about 41.4% of CBL's gross written premiums in 2015, down from 49.9% in 2014. The NZX-listed insurer posted an annual profit of $35.5 million last year, beating the forecast in its IPO prospectus for earnings of $26.1 million.

CBL will pay for the acquisition through cash, bank debt and vendor funding, with 11.4 million euros of the purchase price paid over two years after the deal was completed, subject to any adjustments based on the European firms' performance.

SFS executive chairman and shareholder Antoine Guiguet will keep his position and reinvest a portion of his takings from the transaction to retain 26% of the CBL subsidiary acquiring the companies. IMS managing director Gerard Marichy will also keep his position and buy a 3% stake in the subsidiary. SFS's principal owner Patrice Gilles will exit and become an advisory chairman of SFS.

Messrs Guiget and Marchy will be given the option to convert their shares in the subsidiary for CBL stock after three years, based on the average weighted price and other terms and conditions. If not exercised, the options will lapse on the fourth anniversary of the deal's completion.

The transaction comes at a volatile time in Europe, with the UK set to vote June 23 on whether to quit the European Union economic bloc. CBL this week downplayed the impact a 'Brexit' would have on its business, because its European insurer is based in Ireland. If the UK does vote to leave, CBL's UK-based European Insurance Services will keep operating in Tunbridge Wells, but CBL would shift its legal domicile, probably to Ireland.

CBL listed on the NZX last year, raising $90 million at $1.55 a share to help fund the acquisition of Australian insurer Assetinsure. Since then, the shares have climbed to $2.49.

(BusinessDesk)