TIDMBPM
RNS Number : 0414Q
B.P. Marsh & Partners PLC
07 September 2017
Date: 7(th) September 2017
On behalf of: B.P. Marsh & Partners Plc
Embargoed until: 0700hrs
B.P. Marsh & Partners Plc
("B.P. Marsh", the "Company" or the "Group")
Trading Update
Trading Update
B.P. Marsh, the niche venture capital provider to early stage
financial services businesses, is pleased to provide the market
with an update on trading for the six months ended 31 July
2017.
Highlights
- New investments - CBC UK Limited and XPT Group LLC
- Increased shareholding in LEBC Holdings Limited
- Disposals - Besso Insurance Group Limited and Trireme Insurance Group Limited
- Follow-on funding provided to Nexus
- Dividend of 3.76p per share announced for year ending 31 January 2018
- Strong opportunity pipeline
- GBP13.2m net cash available
- Appointment of Nicholas Walker as Non-Executive Director
New Investments
Investment in CBC UK Ltd ("CBC")
On 17 February 2017, the Group acquired, through a newly
established company Paladin NewCo Limited ("Paladin"), an effective
35% shareholding in CBC.
CBC is a Retail and Wholesale Lloyd's Insurance Broker, offering
a wide range of services to commercial and personal clients as well
as broking solutions to intermediaries. For the year ending 31
December 2017, CBC has a forecast Revenue of GBP5.55m with a
forecast EBITDA of GBP0.63m.
As part of the transaction, the Group partnered with CBC's
management team and Andrew Wallas, who joined the Board as
Non-Executive Chairman, delivering a 50% and 15% shareholding to
both parties respectively.
This transaction was made through Paladin to which the Group
provided GBP4m of funding. This was provided via the subscription
for a 35% shareholding in Paladin for nominal value and a Loan
Facility of GBP4.0m which was fully drawn down on completion.
Having exited investments in two Lloyd's brokers, Besso and
Trireme, during the six-month period, the Group was pleased to
establish this new position in the Lloyd's broking sector, one of
its traditional Markets.
Investment in XPT Group LLC ("XPT")
On 13 June 2017, the Group invested $6m into XPT, a New York
based specialty lines insurance distribution company, subscribing
for a 35% stake.
XPT is a newly established operation which is in active
discussions with a number of parties over potential minority and or
majority investments into established entities in the US wholesale
insurance arena. XPT plans to make one or two US-based acquisitions
before the end of the year.
The management team at XPT is a line-up of industry veterans,
including Tom Ruggieri, formerly of Marsh, Advisen and Swett &
Crawford, Mark Smith, former president and CEO of Stewart Smith,
Jeff Heath, the founder of Heath Group, and Mason Power, former COO
and Chief Marketing Officer at Swett & Crawford.
The investment in XPT is a return to the US market for the
Group, following on from the Company's recent investment in Canada,
Stewart Specialty Risk Underwriting Ltd.
Disposals
Besso Insurance Group Ltd ("Besso")
The Group announced on 4 January 2017 that it had reached
agreement to sell its entire 37.94% shareholding in Besso for cash,
with completion subject to, inter alia, regulatory approval, to BGC
Partners Inc ("BGC").
Completion was announced on 28 February 2017, with the Group
receiving GBP21.6m in cash (net of transaction costs and pre-tax)
following BGC's 100% acquisition of Besso for an enterprise
valuation of approximately GBP70.5m. Various adjustments were then
made by reference to completion accounts, resulting in further
GBP0.4m consideration proceeds (net of transaction costs and
pre-tax) being payable to the Group.
The Group's final proceeds from this sale represent an increase
of GBP0.7m on the valuation at 31 January 2017 and an IRR of 21.9%
since 1995. It also represents an increase of 58% on its last
published valuation of the same stake in Besso of GBP13.9m at 31
July 2015, being the last valuation prior to the commencement of
the sale process.
Trireme Insurance Group Ltd ("Trireme")
On 3 April 2017, the Group announced its intention to dispose of
its 29.94% shareholding in Trireme for GBP2.96m cash, to its fellow
shareholder US Risk Midco, LLC ("US Risk"). Due to the aggregate
quantum of disposals and loan repayments within the portfolio over
the previous 12 months, this required the approval of the Group's
shareholders at a General Meeting. Such authority was given on 19
April 2017 and accordingly the sale completed shortly
thereafter.
This disposal represents an uplift of 15% over the Group's
valuation at 31 July 2016 and an IRR (including fees) of 15.6%
since 2010, the date of investment.
As part of the disposal, Trireme repaid in full the outstanding
GBP2.16m drawn down under its GBP2.42m loan facility with the
Group, plus fees and any accrued interest. As such, the total
pre-tax proceeds received by the Group amounted to GBP5.19m.
Follow-on Investments
LEBC Holdings Ltd ("LEBC")
The Group purchased a further 17.84% stake in LEBC for aggregate
consideration of GBP7.13m in July 2017, increasing its shareholding
to 60.87%.
The shares were purchased for cash from several sellers,
including retiring employee shareholders, members of Management via
LEBC's Employee Benefit Trust and Joint Share Ownership Plan and
the Founder and CEO, Jack McVitie. As part of the transaction, the
Joint Share Ownership Plan repaid the outstanding loan facility of
GBP1.05m in full.
Following the purchase, the Company has an aggregate
shareholding of 60.87% in LEBC, while the balance continues to be
held by Founder and CEO, Jack McVitie and LEBC Management. The
Group's usual strategy is to take minority equity positions,
however in this instance the opportunity to make an additional
investment proved compelling. The increase to a majority position
will not result in changes to management of the investment, with
management continuing to run the business day to day.
LEBC became directly authorised by the FCA on 1 August 2017. The
business, which was previously an authorised representative of
Tenet, has a compliance framework in place that has enabled the
authorisation process. Jack McVitie, Chief Executive, commented
"Direct authorisation ensures we will be able to continue to put
our clients at the heart of everything we do and will provide them
with unequalled service across our 16 offices nationally. Given the
pace of change we have seen in the business and the industry at
large over the last few years now is clearly the right time to make
this change."
Follow-on Funding
Nexus Underwriting Management Ltd ("Nexus")
In July 2017, the Group provided Nexus, in which it holds an
18.14% shareholding, with a GBP4m Loan Facility, as part of a wider
debt fundraising exercise, to undertake M&A activity.
Nexus secured GBP30m in loan facilities in total, with the
balance of GBP26m provided by funds managed by HPS Investment
Partners, LLC ("HPS"), the global investment firm.
To date, Nexus has drawn down GBP16.5m of this GBP30m facility,
using it alongside existing cash resources to acquire Equinox
Global Limited ("Equinox"), Zon Re Accident Reinsurance ("Zon Re")
and Vectura Underwriting ("Vectura"), with further M&A activity
planned for the remainder of 2017.
Equinox, founded in 2009, is a Trade Credit Managing General
Agent with Lloyd's Coverholder approval with offices in London, New
York, Paris, Hamburg and Amsterdam.
Zon Re is a management owned Reinsurance Underwriting Manager
founded in 2003 which offers domestic and international reinsurance
capacity in the accident reinsurance space, specifically for
primary life, property & casualty and accident &
health.
Vectura was established in 2007 and is a Managing General Agency
offering clients a wide range of insurance products in the Marine
Cargo space, and in particular international cargo and freight
liability insurance.
By way of background, since the Company's investment in 2014,
Nexus has grown its Gross Written Premium income from GBP56m in
2014 to a 2017 forecast of GBP157m in 2017, an increase of 180%. In
the same period, commission income has increased from GBP12.3m to a
forecast of GBP31m, an increase of 154%, and EBITDA has increased
from GBP2.6m to a forecast GBP11m, an increase of 323%. The 2017
forecast figures include the three acquisitions noted above on a
full year basis.
Portfolio Developments
The portfolio businesses have continued to develop as
anticipated during the period. Specific instances or developments
are noted below:
The Fiducia MGA Company Ltd ("Fiducia")
Fiducia, the UK Marine Cargo Underwriting Agency, has opened a
new office in Birmingham and launched a comprehensive marine trades
facility for the UK regional marine market.
The office will be headed by underwriter Marc Watts, with
assistant underwriter Gemma Ballard and with Bob Watts leading
development. The team had previously worked together at Groves John
and Westrup and Northern Marine Underwriting (NMU).
CEO Gerry Sheehy commented "Fiducia officially launched in
November 2016 with ambitions to recruit experienced specialists
with the aim of broadening the firm's product base. Further
expansion is planned over the next year and we are also seeing
interest in our product set and capabilities from Europe."
Sterling Insurance (PTY) Ltd ("Sterling")
MB Prestige Holdings (PTY) Ltd ("MB")
The Group's two investments in Australia, Sterling and MB,
continue to perform in line with or above the Group's expectations
at the current time.
Summa Insurance Brokerage, S.L. ("Summa")
Summa continues to perform in line with the Group's expectations
at the current time. For the year ended 31 December 2016 Summa
performed in line with budget, reporting Revenue of EUR6.1m and
recurring EBITDA of EUR1.4m.
Despite some consolidation following the financial crisis, the
Spanish insurance intermediary market remains fragmented, with a
high number of small regional players. Summa is one of the largest
consolidators of regional insurance brokers in Spain, with an
extensive network of offices and agents throughout the country. As
such, the Group believes that Summa is well positioned to take
advantage of growth opportunities moving forward.
This has been demonstrated by Summa's recent acquisition of the
Mikel Lasa Correduria de Seguros, a regional insurance broker based
in Mondragon, the capital of the Basque Country.
Additionally, the Group continues to work with Summa to develop
their interaction with the Lloyd's and London Insurance Market.
Walsingham Motor Insurance Ltd ("Walsingham")
Walsingham, the specialist fleet motor insurance underwriting
agency, has continued to exceed expectations this year and is
forecasting to deliver revenue and profits above budget for the
year.
Dividend
The Board has recommended a dividend of 3.76 pence per share
(GBP1.1m) for the financial year ending 31 January 2018 payable in
July 2018.
The Board aims to find a balance between utilising cash to
invest in the existing portfolio and new opportunities, with
providing investors with a healthy but sustainable yield. It is the
Board's aspiration to continue to maintain a dividend of at least
3.76p per share for the year ending 31 January 2019, subject to
ongoing review and approval by the Board and the Shareholders.
Share Buy-Backs
During the period of six months to 31 July 2017 the Group
undertook seven Buy-Back transactions from the Market in line with
its Buy-Back policy as announced on 3 March 2017 and 24 July
2017.
The Group's Share Buy-Back Committee meets periodically to
decide if Buy-Back transactions should be undertaken when the
discount to Net Asset Value of the Group's share price exceeds 25%.
The suitability of the 25% threshold is regularly monitored by the
Board. The Buy Backs are intended as a stabilising mechanism and
have been particularly useful during periods of market
instability.
The Group bought back 28,646 shares in total between 3 March
2017 and 16 March 2017 for an aggregate price of GBP53,967. These
shares were transferred into Treasury and formed part of the award
to Management and other staff as part of the Group's Share
Incentive Scheme as announced on 29 June 2017.
Board Change
The Board is pleased to announce the appointment of Nicholas
Walker as a Non-Executive Director, with effect from 6 September
2017. Upon appointment, Mr Walker also joined the Company's
Remuneration Committee and Audit Committee.
Mr Walker is well-known to the Group, having worked with him in
his capacity as Joint Managing Partner of Socios Financieros, the
Madrid-based corporate finance firm which he founded in 1991, on
matters relating to Summa, the Group's Spanish investment. This
involvement resulted in Mr Walker's appointment as Non-Executive
Director of Summa in February 2017.
Prior to founding Socios Financieros, Mr Walker was Vice
President and Country Head of the Spanish M&A team at Citicorp
from 1988-1991 and was an Analyst and Vice President at Bank of
America International, including a member of its European M&A
Group from 1985-1988.
The Board consider that Mr Walker's long track record in
European and international M&A will bring additional depth to
the Group and provide an excellent resource for the Management team
and look forward to his contribution.
New Business Opportunities and Outlook
During the six-month period the Group has continued to see a
strong flow of new investment opportunities, both in the UK and
internationally, and discussions are ongoing on a number of
these.
At the present time both the MGA and broking sub-sectors are
producing good potential deal flow in quality businesses in the
insurance market. The increase in the Group's top limit of first
round investment funding from GBP3m to GBP5m, announced in
February, has had a positive impact by widening the Group's sphere
of opportunity.
North America continues to be an area of focus, where the Group
sees considerable opportunity for insurance businesses to develop
with its input and experience in the London market.
On the wealth management side, the Group continues to be
interested in businesses with ambitious and capable management
teams, whether IFAs, fund managers or other intermediaries.
The Group continues to see opportunity inflow from the fintech
sector, however, has yet to find one that would fit with the
Group's investment model and expertise.
The impact caused by Hurricane Harvey, the first major storm to
hit the US in over a decade, at the end of August is still being
measured, with latest estimates of industry insured losses ranging
from $10bn-30bn. The Group's portfolio of insurance intermediary
businesses is not exposed to insurance risk and should benefit from
the adjustment to risk pricing that typically follows such an
event.
Cash Balance
The net cash available for investment after provision for tax
and commitments currently stands at GBP13.2m.
Interim Results
The Group expects to report the results for the six months to 31
July 2017 on Tuesday 17 October 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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