10% shareholding deal to be completed in next few weeks

Norwich Union (NU) has pulled out of talks to buy a stake in consolidator Oval, leaving Allianz poised to take a 10% shareholding.

It is understood that NU had been in discussions with Oval’s shareholders to buy a stake in the broker, thought to be in the region of 5%–10%.

But it is believed to have abandoned negotiations as the price was too high.

A well placed source said: “NU thinks Oval is a great business, but the price needed to be a fair one.”

The insurer, which last week confirmed its purchase of a 7.5% stake in Giles Insurance Brokers, has previously hinted that the purchase of further minority shareholdings in other brokers is to be expected.

Meanwhile, Allianz is believed to be on the verge of securing a stake in Oval, expected to be approximately 10%.

The shareholding is understood to have already been ratified at an extraordinary general meeting of Oval’s shareholders, and the deal is expected to complete within the next couple of weeks.

It is not surprising that Allianz would look to buy a stake in Oval. The broker provides a significant stream of business to the insurer through a solus scheme for SME business.

But it is not clear how the deal will be structured and which shareholders will reduce their stake holding.

Private equity firm Caledonia Investments owns a 40% stake on a diluted basis. Members of Oval’s senior management are also shareholders.

NU, Allianz and Oval refused to comment.

Stake-building: what insurers gain from a broker stake

Norwich Union and Allianz have acquired minority stakes in a number of brokers in recent months, apparently in response to AXA and Groupama’s broker acquisition strategies.
In March, NU and Allianz each acquired a stake worth approximately 5% in consolidator Jelf. Three months later Allianz upped its holding in listed broker CBG to 5.6%.
Last month, NU acquired a 7.5% stake in Giles Insur-ance Brokers for £5.2m.
The two insurers have insisted that the share-holdings are a demonstration of support of independent brokers and not a bid to protect market share.
Ownership of a minority stake will not prevent the broker being bought by a rival (insurer) consolidator.
And in the case of the NU’s investment in Giles, the money is not being used to fund acquisitions.
But NU stands to benefit from a great deal of business from Giles, as will Allianz from Oval.
There is no suggestion that the insurer’s invest-ments come with any conditions regarding the placement of business.
But it will certainly do NU and Allianz no harm to support brokers that favour them.
They may even make a good return on their investment to boot.