Which insurers are most likely to make a play for Groupama’s UK assets? We ask three industry analysts for their predictions
RSA has been tipped by analysts as a prime candidate to make a bid for Groupama UK.
Shore Capital analyst Eamonn Flanagan says RSA could be a potential bidder, but predicts it would dispose of the broking arms – Carole Nash, Bollington and Lark – pretty quickly after sealing any deal.
“If you had a trade buyer like RSA and Aviva, the broking business would pop out fairly quickly,” he says. “They don’t sit comfortably – we have had the Aviva/RAC nonsense, that’s gone. We had the RSA owning Swinton many years ago and then selling. Distribution and manufacturing do not sit well together.”
“But with private equity, the brand remains quite good,” Flanagan adds. “And the brand of those broking businesses is good, particularly Carole Nash – that’s a great brand.”
Appetite for UK
Cash-rich RSA, which is unaffected by the eurozone crisis plaguing its rivals, has so far been intent on expanding in emerging markets and Scandinavia.
It has also opted to return retained earnings with handsome dividend pay-outs.
However, it also has an appetite for UK assets, judging by its £5bn Aviva general insurance bid in 2010.
Also, Groupama has focused its UK private motor and commercial business on specialisims. The insurer estimates that 60% of its UK business is now in niches and specialisms.
That may prove more attractive to RSA than a run-of-the-mill aggregator-heavy book. As always, any bid will depend on price.
Collins Stewart analyst Ben Cohen says: “There is no reason why [RSA] would not take a look at it. It looked at Aviva.
“I am not sure that it would automatically not deal with Groupama, just because it’s in the UK. It would depend on whether the business lines were complementary and what they would have to pay for it.”
Price-sensitive
Joy Ferneyhough, analyst with Espirito Santo, pours cold water on an RSA bid, however.
“The focus for [RSA’s] bolt-ons has been emerging markets and international, and I’m not sure what it would gain, given the strength of its existing brands and distribution capabilities in those business lines.
“I just don’t think it’s where RSA’s great ambitions lie. It already has a very sizeable market share, in both personal lines and commercial lines in the UK.”
Ferneyhough adds: “It depends on the price. If it is going at a very distressed price, then RSA will have a look at it.”
Going private
Flanagan believes an alternative to a trade sale is private equity.
“If it goes at around 1.1x book level or below, I think it would be snapped up quite quickly,” he says. “Private equity has a lot of money, and is seeking places to put it.
“Also, a great attraction of insurance companies for private equity is that it does brings a big pile of assets for somebody to manage.
“If you talk to any private equity player, they feel they can do a bit better than putting [those assets] into bonds and cash. So if they feel they can take over any insurance company with a lot of bonds and cash, they can get an immediate uplift on the investment return pretty quickly.”
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