Validus Holdings, Ltd. (NYSE: VR) will acquire Western World Insurance Group, Inc. (Western World) for a cash consideration of $690 million. The transaction, which is pending customary approvals, is expected to close by third-quarter end.
Franklin Lakes, NJ based Western World is a specialty lines insurance company. It boasts profits for 50 straight years and a strong foothold in the binding authority business model. Hence, Validus wants Western World to operate as a separate business, but under its umbrella.
Validus expects to deploy its existing funds to finance the takeover. Its strong financial position will support the purchase price of $690 million. While cash and cash equivalents, as of Mar 31, was $1.02 billion, retained earnings were solid at $2.1 billion. Recognizing Western World's brand value, the purchase consideration is at 33% premium to its adjusted GAAP book value as of Mar 31.
While Validus can leverage from Western World's distribution platform and industry leading technology, Western World stands to gain from Validus' proficiency in short-tail business that would enhance its underwriting operations. While customers can enjoy the suite of distinguished products and services, the companies will be able to enhance their operational performance.
The recent acquisition announcement came after a hiatus of about 18 months. Back in Nov 2012, Validus acquired Flagstone Reinsurance Holdings, S.A. (Flagstone) for a combination of cash and common shares. Adding Flagstone to its portfolio strengthened Validus' property catastrophe reinsurance and short-tail specialty insurance platform.
There was no earnings momentum over the last 30 days. With optimism surrounding the recent acquisition, we expect analysts to raise their estimates, which should in turn create upward pressure on the Zacks Rank. Validus Holdings presently carries a Zacks Rank #3 (Hold).
As insurance brokers choose the inorganic route for growth, the takeover saga rages the space. Earlier this month, Arthur J. Gallagher & Co. (NYSE: AJG) announced acquisitions back to back. Brown & Brown Inc. (NYSE: BRO) and AON plc (AON) have also travelled the inorganic path.
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