Ardonagh agrees to buy PSC Insurance for $2.26bn

Insurance broker PSC Insurance has reached a deal to be sold to The Ardonagh Group based in London. Picture: iStock

The Ardonagh Group has struck a deal to buy PSC Insurance Group for $2.26bn.

It comes after speculation emerged out of London this week that the UK-based group was closing in on the Australian-listed insurance broking business in a deal that may happen in about two weeks.

PSI Insurance issued a statement after the market had closed on Wednesday saying it had entered a scheme of arrangement-structured buyout deal, where Ardonagh will pay $6.19 a share in cash, a 27.6 per cent premium to PSC’s undisturbed closing share price of $4.85 per share on March 12.

The offer values the business at $2.26bn or $2.4bn including debt.

The announcement comes after DataRoom reported last week the $1.9bn Australian-listed PSC struck an agreement with Ardonagh on its insurance underwriting agency in Australia, fuelling suggestions something bigger could be at play.

PSC exited its agreement with its existing broker, Lloyds-backed Miller Insurance, and entered into a deal with Ardonagh instead.

PSC has been working with Goldman Sachs to find a buyer, as some of its key shareholders were keen to exit, and speculation earlier emerged Marsh had been running the ruler over the insurance broker.

Arthur J. Gallagher & Co also looked into it but was put off by the price, as was Australian rival Steadfast.

The market has predicted Ardonagh had the most to gain from an acquisition because PSC generated a lot of revenue from London where Ardonagh, a trader, operates.

PSC Insurance announced on March 13 it had received multiple strategic approaches and was in discussions which may or may not lead to a takeover offer for the company.

Recent discussions were subject to due diligence and negotiation and remain incomplete, with any potential outcome highly uncertain, the company said.

Ardonagh told the market on Wednesday night it believe that the businesses were complementary, and the strengths of PSC were areas identified as strategically important as growth opportunities at Ardonagh.

PSC’s significant shareholders and key executives, including Paul and John Dwyer, Brian Austin, Tara Falk and James Kalbassi, were rolling about 26 per cent of their PSC shares into the combined entity, accounting for about 10 per cent of PSC shares on issue, and will remain involved in the group.

The terms of the deal, which is not subject to financing, also involves call options over part of their respective shareholdings representing about 19.99 per cent of PSC shares in total, which are exercisable in the event of a competing proposal for PSC.

PSC said The Ardonagh Group was one of the world’s leading independent insurance broking groups that was founded in 2017 and grown to be a top 20 global broker with over 10,000 people in 30 countries and £1.6bn of revenue in 2023.

The PSC board is recommending the offer.

“We believe this transaction maximises value for PSC shareholders while also providing an excellent platform for growth for PSC employees and clients, said chairman Paul Dwyer.

The value of the offer is 20.8 times earnings before interest, tax, depreciation and amortisation to enterprise value or 28.1 times net profit and 18.7 to 19.4 times EBITDA or 25.9 to 27.2 times net profit on guidance for the 2024 financial year.

The terms of the proposal, which shareholders would vote on in September, includes a $22.6m break fee.

In February, PSC Insurance upgraded its full year guidance to between $125m and $130m from $122m to $127m previously.

Net profit guidance was $83m to $87m compared to $82m to $86m previously.

The key driver was strong organic growth and several smaller acquisitions during the half.