Steadfast agrees $301m deal for Insurance Brands Australia

Insurance broker network Steadfast has made another acquisition and is eyeing international expansion after boosting profits for an eighth consecutive year.

Steadfast chief executive Robert Kelly. Pic: Nikki Short

A bullish acquisition strategy is paying off for insurance broker network Steadfast, which is eyeing further expansion overseas after reporting an eighth consecutive year of rising revenue, profit and dividends.

The ASX-listed firm hit the top end of its previous guidance, revised during its interim results announcement in February, with underlying EBITA coming in at $340.4m for the year to June, up 29.5 per cent from the previous year.

Underlying NPAT was 29.3 per cent higher at $169m, while statutory NPAT rose 20 per cent to $171.6m.

Underlying revenue topped $1bn for the first time, reaching $1.14bn, with the 26.2 per cent increase largely a result of insurance premium increases, organic customer growth across the network and a flurry of acquisitions.

Steadfast announced on Wednesday its latest purchase - a $301m deal to take over fellow broker and underwriting network Insurance Brands Australia (IBA), one of the largest operators in the SME space.

Steadfast will make an initial cash and scrip payment of $276m, with an additional payment of up to $25m payable subject to performance criteria.

Including synergies, the acquisition is expected to contribute $22.4m in EBITA to Steadfast’s full-year result for 2022-23, and $7.4m in NPAT.

Steadfast chief executive Robert Kelly said the company faced stiff competition to acquire IBA, but the deal would bolster his company’s position as the largest general insurance broker network across Australia and New Zealand.

“It’s a very well-established business, it works in a whole range of SME areas and you’ve got the underwriting agencies that are well respected in the market, but with respect, are not developed to the extent that they will be,” he said.

“We will work alongside them to develop their product line and spread their product line to our distribution.

“Going back to when we put the (Steadfast) IPO together in August of 2013, it was predicated on that we would be an acquisition company that would acquire its network brokers over a period of time.

“We’ve done that very successfully over the last nine years, and of course last year, via our ‘trapped capital’ initiative, it was absolutely typical of what we want to do.”

Steadfast also launched a fully underwritten $225m institutional placement on Wednesday and plans to offer a share purchase plan to raise up to an additional $25m.

Proceeds will be used to fund the company’s trapped capital program, which was rolled out in February 2021, and involves increasing its equity stakes in brokerage businesses within its network.

Steadfast spent $552m on 23 trapped capital acquisitions in 2021-22, including its $411m buyout of Coverforce Group in August 2021.

It has identified a $400m pipeline of further acquisitions, with $220m expected to be completed in 2022-23.

Steadfast, which boasts a network of 427 brokers spread across Australia, New Zealand, and Singapore, has been expanding its footprint since its listing nine years ago.

Last year the company acquired a majority 60 per cent stake in unisonSteadfast, a global network of independent insurance brokers based in Hamburg and Chicago.

Mr Kelly described the company as a “sleeping giant”, and said it would be used as a platform for further acquisitions of overseas brokerage firms.

“The reality is that the potentiality of unisonSteadfast is immense,” he said.

“When Sam Hollman (chief operating officer) takes control of that in February next year, the full confidence of what we can and can’t do about acquisitions will be reached.

“I would think that as we come up to the end of FY23, you’ll have a very clear picture of what that would look like.

“By that time I think the impact of rising interest rates will have started to blunt the PE (private equity) companies that have a voracious appetite for running around the world offering, in some cases, rather extravagant multiples on businesses.

“We will do it the way we do it in every other approach to buying something - we’ll do it slowly, we’ll do it jurisdiction by jurisdiction.

“We haven’t put one of our very most senior people in to lead our international division just for something to do. We did it because we want to start looking at how we can develop that side of the firm.”

Steadfast will pay a final dividend of 6.8 cents a share, up 11.4 per cent, to be paid on September 9.

In its guidance for 2022-23, the company flagged underlying EBITA of $400m-$420m and underlying NPAT of $190m-$202m.

Steadfast shares are in a trading halt pending completion of the institutional placement.