Reinsurance News
1st April 2022 – Author: Steve Evans
Randall & Quilter Investment Holdings Ltd (R&Q), the non-life global specialty insurance company focused on program management and legacy transactions, is set to be acquired by one of its major shareholders, in an acquisition backed by investment group 777 Partners.
The acquisition will value Randall & Quilter’s (R&Q’s) existing issued share capital at approximately £482 million, while Brickell PC Insurance Holdings LLC, which is backed by 777 Partners, will also invest $100 million of new equity funding into R&Q.
The $100 million of equity funding is being used to de-lever R&Q’s balance sheet, as well as improve the firms financial profile after an in-depth review of the legacy insurance portfolio.
The acquisition needs the approval of R&Q shareholders, plus regulatory approvals to be consumated.
R&Q’s directors support the proposed acquisition and are urging shareholders to support it.
The acquirer, Brickell, is controlled by 777 Partners Steve Pasko and its principal economic investor is Miami headquartered investment firm 777 Partners LLC.
Brickell and its affiliates currently have a 23.2% shareholding in R&Q, but hold 9.9% voting rights in the company.
The merger process will see Brickell PC2 Insurance Holdings Limited set up in Bermuda in 2022 for the purposes of merging with R&Q.
Brickell PC2 Insurance Holdings Limited will merge with and into R&Q, with R&Q left as the surviving company and R&Q becoming an indirect wholly-owned subsidiary of Brickell.
As a result, R&Q will be owned by Brickell which will become the holding company of both R&Q and Brickell’s other existing insurance operations.
R&Q is transitioning its business towards a more capital light model, part of which has been shifting its legacy portfolio to leverage third-party capital appetite, while growing its fee income business under program management.
The company anticipates achieving c.$90 million in run-rate pre-tax operating profit by the end of FY 2023.
This is down to a belief it can generate significant operating leverage as its business achieves scale, underpinned by the ongoing growth in its program management business and the ability to deploy third-party capital raised under its Gibson Re sidecar.
It’s also worth noting that a review of legacy reserves turned up “a potential c.$90 million non-cash, pre-tax charge associated with impairing a structured reinsurance contract that was previously capitalised as an asset on the Group’s balance sheet,” according to the company.
In addition, R&Q said it has used “meaningful cash capacity to fund collateral requirements upon certain reserve strengthening” in Q4 2021.
Those are the two drivers for needing the additional $100 million of equity capital, to de-lever the balance-sheet, to counter an an IFRS-based profit after-tax loss of c.$135 million to $145 million created by these reserve issues.
Steven Pasko, Chairman of Brickell, commented, “We have enjoyed a strong relationship with R&Q as a shareholder since 2019 and further supported the business with an infusion of capital in 2020. We are excited about the prospect of integrating R&Q into our robust insurance ecosystem and expanding our business into the legacy space, by combining R&Q’s deep experience in managing complex run-off claims with 777’s unique asset management capabilities.”
Commenting on the Acquisition, William Spiegel, Executive Chairman of R&Q, added, “Having agreed with Brickell the terms for a recommended cash acquisition of R&Q and $100 million new equity funding, the Board of R&Q is unanimous in its belief that this represents the best outcome for our shareholders. The Acquisition provides shareholders the opportunity to crystallise the value of their holdings, in cash, and at a material 20% premium to our undisturbed share price, and a substantial 1.82x multiple of expected FY 2021 Tangible Net Asset Value per share, while also providing $100 million in new equity funding to de-lever our balance sheet and improve our financial profile.
“Furthermore, the offer demonstrates the strength of both our business today and the opportunities ahead of us. The value Brickell sees in R&Q is testament to the clear strategic vision we have outlined, the quality of our Legacy Insurance and Program Management businesses and the skills and expertise of our people. Brickell is a long-term strategic partner that has a deep understanding of our business and our markets, and has bought into our five-year plan to transform R&Q into a fee-based, capital lighter business. In addition to enabling our shareholders to realise attractive value, we also believe that an acquisition by Brickell would be an excellent outcome for our trading partners and employees, with Brickell’s existing presence and significant ambitions in the fronting and legacy sectors highly complementary to our business. I would like to thank our people for their ongoing commitment as we continue to focus on business as usual and delivering our strategy.”
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