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Assurant Grows Solid in Lifestyle Market With Warranty Group

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Assurant, Inc.AIZ has announced that it has entered into a definitive agreement to acquire The Warranty Group, a portfolio company of TPG Capital, in a cash-stock deal. The transaction is expected to culminate in the first half of 2018.

The combined entity will emerge as a leading global provider in lifestyle market.

Following the closing, the Assurant will become wholly owned subsidiary of TWG Holdings Limited, which will be renamed as Assurant Ltd. Assurant shareholders will have 77% stake in the combined entity while the remaining 23% will be owned by TPG Capital and affiliates.

Shares of Assurant will continue trading on the New York Stock Exchange under its current ticker symbol.

Transaction Details

The deal values Warranty Group at $2.5 billion in terms of enterprise value and $1.9 billion in equity value.

The purchase consideration consists of $1.5 billion in stock and $0.4 billion in cash and $0.6 billion in debt refinanced.

Financing the Transaction

Assurant intends to finance the cash consideration and repayment of approximately $591 million of The Warranty Group's existing debt through new debt of $0.7 billion and $0.3 billion in preferred stock, which will be issued post closure.

Assurant has also entered into a commitment letter for a bridge loan worth $1 billion to finance the deal.

Rationale of the Transaction

Warranty Group provides vehicle service contracts, extended service contracts and financial services sold through complementary channels.

Joining forces with The Warranty Group will consolidate Assurant's presence in the global lifestyle market. The Warranty Group will widen Assurant's market presence in its vehicle protection, extended service contracts and financial services businesses across 35 countries.

Also, this geographical expansion will provide resources to accelerate Assurant's mobile strategy in key markets such as, Asia-Pacific. The combined entity will have expanded scale for auto in Mexico, Brazil and Argentina with synergies across North America, Latin America, Europe and Asia plus a diversified business mix.

Assurant remains focused on diversifying its product and service portfolio, thereby adding client partnerships and increasing its market share. The merger brings together two businesses with deep expertise across global markets. This transaction enhances the combined entity's ability to not only offer quality products and services but also provide new opportunities to their clients, partners, employees and other important stakeholders.

The consolidation is expected to be modestly accretive to Assurant's 2018 operating earnings per share on a run-rate basis. Assurant also estimates $60 million of pre-tax operating synergies by the end of 2019.

The transaction will also ensure sustained earnings with higher contribution from Global Lifestyle, about half of net operating earnings from businesses with no or low catastrophe exposure, among others.

A solid capital position continues to drive Assurant in its strategic endeavors.

Inorganic Growth Story

The company seems to have carved an impressive inorganic growth story with its mergers and acquisitions. On Jan 4, 2017, the company acquired Green Tree Insurance Agency, Inc. from a wholly-owned subsidiary of Walter Investment Management Corp. to further its strategic focus on the housing market by expanding its voluntary offerings to new and existing clients.

The company envisions earnings growth and margin expansion at the Lifestyle segment through a combination of profitable growth and operating efficiencies worldwide. The recent acquisition thus is a perfect fit.

A.M. Best Jumps into Action

Following the announcement of acquisition, A.M. Best commented that the Long-Term Issuer Credit Rating of "bbb+" Short-Term Issue Credit Ratings assigned to Assurant-issued securities remain unchanged.

Also, the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of "a+" of the U.S. property/casualty subsidiaries as well as the FSR of A- (Excellent) and the Long-Term ICRs of "a-" of the core life/health subsidiaries of Assurant are all kept unaltered.

Outlook remains stable.

A.M. Best's take is based on the terms and conditions of the agreement, the strategic nature of the buyout and the potential for synergies and efficiencies to be gained in the future.

Insurers Opting for Inorganic Route

Mergers and acquisition not only add capabilities to portfolio but also expand geographical footprint of companies, there accelerating their growth profile. Hence, acquisitions rage the insurance space.

White Mountains Insurance Group, Ltd. WTM announced that it has entered into an agreement to acquire a 50% stake in DavidShield to gain a premier spot in the accident and health insurance market. Arthur J. Gallagher & Co. AJG recently acquired Santa Fe, New Mexico-based Reynolds & Rodar Insurance Group, Inc to expand its presence in New Mexico. Fidelity National Financial, Inc. FNF has announced that its FNF Group has recently acquired a majority stake in SkySlope, Inc. to utilize the best of technology to provide quality services to real estate agents and brokers.

Zacks Rank & Share Price Movement

Assurant carries a Zacks Rank #4 (Sell). Shares of Assurant have outperformed the industry year to date. While Assurant's shares have returned 8.9%, the industry has gained 8.1%. We expect the company's diversified product offerings and strategic acquisitions to further drive its shares in the near term.You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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