AXIS Capital To Buy Novae & Consolidate Lloyd's Presence

AXIS Capital Holdings Limited (NYSE:AXS) will buy Novae Group plc for $605 million in cash. This acquisition is intended to ramp up the acquirer’s Lloyd's presence. Pending regulatory approvals, the transaction is expected to culminate in the fourth quarter of 2017.

Transaction Details

The purchase consideration represents a 20% premium to Novae’s closing stock price on Jul 4, 2017 or 29% to the volume weighted average closing price per Novae’s share for the one month period up to and including 4 Jul 2017. Jul 4, 2017 was the last business day before the acquisition was announced.

AXIS Capital will deploy its available cash to fund the transaction or even go for new borrowings, if market conditions favor.

Acquisition Rationale

London-based Novae Group with a market capitalization of £374 million is a diversified property and casualty insurer operating through Syndicate 2007 at Lloyd’s.

Thus the acquisition will consolidate AXIS Capital’s Lloyd presence. Addition of Novae Group places the acquirer into the top ten insurers’ bracket at Lloyd as AXIS Capital emerges a $2 billion worth insurer in the London specialty market.

AXIS Capital envisions a leading presence in its operational markets and the acquisition adds scale and capabilities to strengthen its specialty risks in the London market. Based on 2016 results, the combination represents gross written premiums over $6 billion. The transaction complements AXIS Capital’s international specialty insurance growth strategy.

Upon the acquisition’s closure, Matthew Fosh, Novae Group CEO, will be appointed as the Company’s Executive Chairman, Europe. Robert Forster, Novae CUO, will play a senior underwriting management role on the leadership team of AXIS Capital’s international insurance division.

Novae Group, on the other hand, can benefit from AXIS Capital’s strong financial positon as well as compelling resources to expand its underwriting businesses.

The transaction will be accretive to the acquirer’s bottom line and return on equity in the first year, post sealing the acquisition deal.

AXIS Capital has been investing across international specialty insurance business to enhance efficiencies as well as better serve clients and brokers across the globe plus at the same time, augment shareholders’ value. The combined entity stands to benefit from the same.

The company continues to build on its Specialty Insurance, Reinsurance plus Accident and Health (A&H) — to pave way for long-term growth. It also remains focused on boosting its portfolio mix and improving the underwriting profitability apart from strengthening focus on casualty and professional lines in the insurance segment. The acquisition is thus a strategic fit for AXIS Capital.

Inorganic Growth Story

AXIS Capital eyes strategic acquisitions to gain a competitive advantage. Last November, the company had announced to acquire the general aviation insurance and reinsurance leader, Aviabel, to leverage its position in the global aviation market. With the A&H business started showing strength, AXIS Capital acquired Ternian Insurance Group to brace its A&H retail distribution in the U.S.

Share Performance

Shares of AXIS Capital have underperformed the Zacks categorized Property and Casualty Insurance industry, year to date. While the company’s shares have inched up 0.74%, the industry gained 5.59%. Also there was no earnings momentum over the last 60 days. Nonetheless, we expect this Zacks Rank #3 (Hold) company’s sustained efforts to expand capabilities and accelerate growth to drive the shares higher.

Acquisitions Ramping Up Growth Profile

Acquisitions are a well-accepted growth strategy among insurers. The Hanover Insurance Group, Inc. (NYSE:THG) has announced that its international specialty insurance group Chaucer has bought SLE Holdings to ramp up its specialty capabilities. Fairfax Financial Holdings Limited has announced to purchase Allied World Assurance Company Holdings, AG (NYSE:AWH) to form a global leader in property and casualty insurance, reinsurance and investments, while Sun Life Financial Inc. (TO:SLF) has closed the buyout of The Premier Dental Group, Inc. to fortify its dental network.

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