Validus Holdings, Ltd.
) 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
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
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
As insurance brokers choose the inorganic route for growth, the
takeover saga rages the space. Earlier this month,
Arthur J. Gallagher & Co.
) announced acquisitions back to back.
Brown & Brown Inc.
AON plc (
) have also travelled the inorganic path.
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