The AUB Group Ltd (ASX: AUB) share price is racing higher this morning following the announcement of two strategic acquisitions: MGA Whittles and a 40% stake in BizCover.
The market has reacted positively to the announcement, with AUB shares up 5% at the time of writing.
What does AUB do?
AUB is a provider of risk management, advice and solutions in Australasia. The group represents over 1.2 million client policies through around 135 partner businesses that cover 600 locations throughout Australia and New Zealand.
The AUB Group primarily operates through the two business segments of Insurance Intermediaries and Risk Services.
Acquisition of MGA Whittles Group
AUB announced that it has entered into a binding agreement to increase its ownership of Adelaide-based MGA Whittles Group to 100%.
MGA is one of the largest Insurance Broking groups in Australia providing broking and risk advisory services across a broad spectrum of industries. Additionally, the Whittles Group provides a range of complementary services to the strata and property management industries.
The total acquisition consideration for 50.1% of MGA and 100% of Whittles is $140 million. This is payable by $29,131,658 in cash on completion and 8,764,996 fully paid ordinary shares, which will be issued at a price of $12.649 per share.
It is estimated that the acquisition will complete on 31 March 2020 subject to satisfactory completion of final due diligence. New AUB shares issued as consideration will rank equally with all other AUB ordinary shares.
AUB commented that it is committed to maintaining MGA and Whittles' strong governance, management teams and operating profile, which will include Mr John George continuing as Executive Chairman.
Whittles will continue to operate under existing brands and leadership teams headquartered in Adelaide.
AUB commented that it will be able to further leverage MGA's capabilities to enhance other existing and new broking operations.
Acquisition of 40% interest in BizCover
AUB also announced that it had acquired a 40% interest in BizCover, Australia's leading online insurance distribution platform.
BizCover analyses insurance needs and digitally delivers multiple insurance quotes, providing customers the ability to purchase cover instantaneously. The business has grown strongly since its establishment 11 years ago to now be the reported dominant insurance technology business servicing the SME (small to medium-sized enterprise) market both directly and through brokers and other white label partners.
The total acquisition consideration is reported as $132 million, plus a working capital adjustment estimated to be $3 million. The full consideration is payable in cash and will be funded through AUB's debt facilities.
AUB commented that BizCover is a highly profitable and rapidly growing business that has successfully targeted micro and smaller commercial clients that naturally complement the Austbrokers SME client base.
AUB and BizCover have partnered to deliver 'Austbrokers ExpressCover', a new quote-to-bind platform exclusive to Austbrokers members.
As per the announcement, AUB notes that it has the right to nominate up to two directors to the board of BizCover.
AUB will fund the BizCover acquisition via available cash and undrawn debt, and the cash portion of the MGA Whittles transaction via a committed extension of its existing debt facilities.
Following the completion of these two transactions, AUB's proforma gearing is expected to increase to 32.8%.
