M&A deals take off
The Bermuda mergers and acquisitions scene is alive and well.
The Bermuda insurance industry’s relatively subdued mergers and acquisitions (M&A) scene was rocked in July when legacy re/insurer Enstar announced it was being bought for $5.1 billion and taken private by New York private equity firm Sixth Street.
The announcement marked an affirmation of the importance and value of the legacy insurance market, which has grown rapidly over the last decade, with Enstar leading the way.
At the same time, many Bermuda residents watched a tumultuous takeover fight between local insurers BF&M and Argus come to an end with a merger announcement. While the value of the merger is a fraction of the Enstar deal, it will affect thousands of insurance and pension customers in Bermuda.
Enstar said the purchase was a “full liquidity event for shareholders” who would receive an 8.5 percent premium on their shares, which were already trading at a record high before the sale.
The purchase marks a high point for Enstar, which traces its beginnings to 1993 when it was formed as a standalone run-off insurance company.
By 2007, under the leadership of Dominic Silvester, Enstar had listed on the New York Stock Exchange. Today it has $19.1 billion in assets under management and shareholders’ equity of $5.9 billion. Since its formation, it has completed more than 115 acquisitive transactions.
Silvester, who is a director and owner of English rugby club Saracens, stands to receive $220 million as a result of the sale, based on public records that he owns more than 650,000 shares.
“Over the past 30 years, Enstar has built a strong position in the legacy market founded on our exceptional scale and track record, pricing and claims expertise, and entrepreneurial culture,” Silvester said when the Sixth Street purchase was announced.
Michael Muscolino, the co-founder and partner at Sixth Street, which is buying Enstar with other investors including JC Flowers and Liberty Strategic Capital, said the company was attractive because of its conservative balance sheet and strong risk management culture.
An evolved sector
The Enstar purchase shows how legacy insurance has evolved. Ratings agency AM Best said in 2022 that run-off is no longer seen as “an option of last resort” and indicative of failed operations.
“Increasingly re/insurers are using the legacy insurance segment as part of their capital and risk management strategies, often for longtailed insurance liabilities.”
A few blocks from Enstar’s Hamilton offices, BF&M and Argus—two of the three largest domestic insurers—have been in a bitter takeover fight that was sparked when one of BF&M’s largest single shareholders wanted to exit its investment and Argus tried to buy it.
A messy dispute ensued, until June 28 when the companies announced plans to merge in an all-stock transaction which would mean Argus shareholders receiving 0.25 BF&M shares for every Argus share they held, valuing the deal at $96 million based on BF&M’s closing share price on August 13. The companies hope to close the merger in the fourth quarter.
The deal still requires regulatory approval. The Bermuda Health Ministry and the Bermuda Health Council have sought assurances that health insurance premiums would not rise at the same time prices paid to healthcare vendors fell, given that the merged company would dominate the market.
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