Ardonagh's true value could exceed £2bn

Ardonagh’s true valuation could be even higher than the £1.9bn that its private equity owners are valuing the business at, Insurance Times understands.

Majority shareholders Maddison Dearborn Partners (MDP) and HPS increased their combined stake to 97% after snapping up equity from minor shareholders at an enterprise valuation of £1.9bn.

The two private equity firms were already majority shareholders when they bought the shares.

But if any outsider bidder swooped in to buy a majority controlling stake in Ardonagh, they would be expected to pay a premium on top of that valuation for the benefit of having full control, according to one source close to the business.

Chief executive David Ross said the deal was “a further example of the long-term commitment to Ardonagh from shareholders who have a deep understanding of the markets in which we operate.”

MDP co-head of transactions Vahe Dombalagian said Ardonagh had “strong trajectory” as it continues to strengthen its position as a leading UK insurance broker.

However, how much Ardonagh’s shareholders actually receive would likely be lower than the enterprise value, once the £1.1bn debt is accounted for.

The current equity valuation is around £800m to £900m.

Risk

The enterprise valuation is widely seen as a boost for Ross, who is now looking to integrate Swinton, finish off the transformation plan and wind down all the expensive one-off costs.

Ardonagh aims to save £40m a year through a cost-cutting programme and a wind down of its investments. 

The insurance group is on course to pull in around £185m, depending on the acquisitions bedding in and the strategy being executed successfully. 

The biggest risk to the business remains its financial leverage, which was described as “very high” in an updated note from Moody’s.

Ardonagh’s debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio is 6.5x, according to the rating agency.

This ratings agency said this was offset by its ‘solid market position, good earnings diversity stemming from a broad range of products and services across the insurance value chain, and good EBITDA margins.’