Marsh tipped as $2bn Aussie insurance broker suitor

Suitors have been running the ruler over PSC Insurance. Picture: iStock

Speculation has emerged that global insurance broker Marsh is the latest party running the ruler over PSC Insurance Group after Arthur J. Gallagher & Co and The Ardonagh Group had earlier taken a look.

Some believe it would be odd timing for Marsh to embark on such a deal, given it was still absorbing the acquisition of Honan Insurance for between $500m and $1bn last year.

Yet its balance sheet is large enough to buy the $2bn Australian listed insurance broker that has been shopped around the market for some time by investment bank Goldman Sachs.

A deal would provide critical mass for Marsh in the local market.

Meanwhile, Arthur J. Gallagher & Co that had been earlier looking at the business was no longer around the hoop because it had baulked at the price, while The Ardonagh Group had taken a look also.

Then there’s not forgetting about its locally listed rival, Steadfast Group.

Yet the company is believed to be too fully priced for Steadfast, with a cheque of about $2.3bn required to see a sale price acceptable for the $2bn listed PSC Insurance.

This would make it earnings dilutive for Steadfast, although a deal could be attractive if the price was about $1.85bn.

Market experts believe there is a strong chance that PSC Insurance has appeal to The Ardonagh Group because it generates a lot of its revenue out of London, where it is based.

The Ardonagh Group has sold its retail business in London, which would give it the financial capacity to embark on a transaction.

Ardonagh is a trader, but Arthur J. Gallagher & Co is focused on building the business.

Weighing against PSC Insurance, as it stands, is that it does not have critical mass here and has exposure to the wholesale insurance market in the UK, which is under pressure.

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

The company outlined recent discussions were subject to due diligence and negotiation and remain incomplete, with any potential outcome highly uncertain.

An analyst research note published by Ord Minnett said it placed a price earnings ratio of 23.5 per cent on PSC Insurance’s share price based on forecast earnings for the 2025 financial year, with a 15 per cent premium applied to its target price in light of strategic interest.

“We expect new business and upward pressures on premium rates to drive solid earnings per share growth over the forecast period,” the analysts said.

“We view PSC Insurance as an attractive mergers and acquisitions target in a consolidating industry.”

The analysts said that PSC Insurance had robust business momentum, with its earnings before interest, tax, depreciation and amortisation for the six months to December up 12 per cent on the previous corresponding period to $54.2m.

In February, PSC Insurance upgraded its full year guidance to $125m to $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.

It has $150m of debt funding capacity for further acquisitions.

“We expect claims inflation and the increasing frequency of extreme weather events to keep upward pressure on premium rates in the near-term, supporting PSC Insurance’s top-line growth. We expect this to be complimented by new business,” the analysts said.

The analysts said PSI’s mergers and acquisitions pipeline was intact and should continue to be incremental to organic growth over the forecast period.