R&Q, or Randall & Quilter, the non-life insurance and reinsurance legacy, run-off and program management specialist, is being sold to a vehicle backed by one of its major shareholders, 777 Partners.
As reported earlier by our sister publication Reinsurance News, Brickell PC Insurance Holdings LLC, which is backed by Miami based investment group 777 Partners, will acquire all of R&Q’s shares in the agreed acquisition deal and also inject new funding into the company.
The acquisition will value Randall & Quilter’s (R&Q’s) existing issued share capital at roughly £482 million, the companies said, while Brickell PC Insurance Holdings LLC will also invest $100 million of new equity funding into R&Q to plug holes revealed after a reserve review.
The acquirer, Brickell, is controlled by 777 Partners co-founder Steve Pasko, counting its main investor as Miami headquartered investment firm 777 Partners LLC.
A new entity named Brickell PC2 Insurance Holdings Limited will be set up in Bermuda in 2022 for the purposes of merging with R&Q, while R&Q will be the surviving entity after the merger is completed, but become a subsidiary of Brickell PC Insurance Holdings, which also has interests in other insurance or reinsurance businesses.
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.”
The acquisition, which is subject to shareholder approval and regulator nod, sees R&Q looking to double-down on its new capital-light approach, as it aims to become a large fee income driven business.
It also resolves a reserve issue that emerged during a review in late 2021, as R&Q noted that this review revealed, “a potential c.$90 million2 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.”
That was down to a 15 year old legacy acquisition, against which claims have accelerated above expectations and R&Q believes commuting the reinsurance deal is the best way forwards
In addition, R&Q said that during Q4 2021, “it has used “meaningful cash capacity to fund collateral requirements upon certain reserve strengthening.”
The $100 million of new equity funding is designed to fill these holes, de-lever R&Q’s balance-sheet and improve its financial profile, so putting these reserve related issues behind it.
R&Q also said today that its Gibson Re legacy risk focused reinsurance sidecar is beginning to deliver for the company.
Gibson Re was launched in September 2021 with $300 million of investor capital set to support a significant percentage of R&Q’s legacy portfolio.
R&Q sees this as simplifying the legacy insurance and reinsurance model, reducing the capital it requires from its own balance-sheet to enter into new deals, while delivering a source of fee income as well.
It reduces R&Q’s upfront earnings from the legacy business, but is designed to compensate for that in future through fees and profit share.
Now, R&Q has revealed that Gibson Re began assuming risk in the fourth-quarter of 2021, with business representing $367 million of reserves assumed by the sidecar by the end of 2021.
That should deliver annual recurring fee income of $16 million for R&Q, the company said today, but added that these fees will not be recognised until later in 2022.
Importantly though, R&Q noted that without the Gibson Re sidecar it would have needed around another $100 million of capital to fund its legacy transactions, hence the capital light approach of reducing pressure on its own balance-sheet capital to fund new deals.
It seems unlikely the reserve issues revealed today are going to affect the Gibson Re sidecar, given it only began assuming risk in Q4 2021, when the reserve review actually took place.
Once the acquisition closes, R&Q will effectively go-private, with its shares removed from the London Stock Exchange.
The acquisition price represents a premium of roughly 20% to the closing price of R&Q shares as of yesterday, March 31st 2022.
This morning, the Randall & Quilter Investment Holdings share price reached as much as 15% above yesterday’s close, but then began to pare back its gains.