AmTrust sells majority stake in US-based fee businesses
AmTrust Financial Services has agreed to sell a 51 percent equity interest in certain parts of its US-based fee businesses to Madison Dearborn Partners, a private equity firm in a deal that values the business at $1.15 billion, plus up to an additional $50 million upon exit, subject to agreed thresholds.
Through a combination of MDP's equity investment of approximately $210 million and debt borrowings by the new business, AmTrust will receive gross cash proceeds of approximately $950 million at closing, subject to post-closing purchase price adjustments, final tax and indebtedness calculations.
The portion of the US fee businesses being sold will be part of a newly formed company that will be led by Stuart Hollander, who is currently president, Specialty Risk, North America at AmTrust and will become CEO of the new company.
AmTrust will also retain a 49 percent equity interest in the business, which will be accounted for under the equity method of accounting. AmTrust plans to use the net cash proceeds to continue to target an operating ROE of 12 percent to 15 percent, through organic growth and other capital allocation opportunities, including the optimization of its debt and capital structure, and considering alternative reinsurance arrangements.
The US fee businesses generated after-tax net income for AmTrust of approximately $53 million in the LTM June 30, 2017 period, which the company expects to offset with net investment income from investing the sale proceeds, as well as organic growth and operating returns generated from the higher capital base.
AmTrust and MDP expect the existing premium generated by the US fee businesses to continue to be supported by AmTrust's underwriting platform. The company expects these transferred fee businesses to produce approximately $750 - $800 million in gross written premium for AmTrust in 2018.
The transaction excludes AmTrust's European fee operations, AmTrust's workers' compensation assigned risk administration business, other fee businesses related to residual lines of business, and fee revenue generated from related parties or internal structuring.
The new company will operate under a new brand name, which will be announced at a later date.
Barry Zyskind, chief executive, AmTrust, said, "This transaction creates value for all parties. For AmTrust, it delivers on our stated objective to unlock the value of our Fee Businesses, while also enabling AmTrust to participate in the future success of the new company and ongoing upside as a significant shareholder.
“The transaction also aligns with our recent initiatives to further strengthen our balance sheet and simplify our organization, and provides us with capital to support AmTrust's meaningful organic growth opportunities. As a deconsolidated business, we believe this portion of the U.S. Fee Businesses will be better able to pursue its growth avenues. We believe this transaction also demonstrates the value of the fee businesses in the US and internationally that AmTrust is retaining."
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