Esure: Cashing In

Shares in auto and home insurance provider Esure are +3.78% this morning after company’s Board recommended that shareholders approve the proposed £1.2bn all-cash takeover offer private equity firm Bain Capital.

Esure: Cashing In

Shares in auto and home insurance provider Esure are +3.78% this morning after company’s Board recommended that shareholders approve the proposed £1.2bn all-cash takeover offer private equity firm Bain Capital. This comes on the back of a gargantuan 30% share price jump yesterday when the bid was first announced.

The acquisition comes on the same day Esure announced its latest results. Half-year pre-tax profit fell 20% YoY, heavily impacted by an increase in claims due to poor weather earlier this year, but investors did not bat an eyelash, focusing all their attention on the takeover offer’s 280p/share implied price. The fact that the offer was all-cash also pleased shareholders. And with shares trading around 277p this morning, investors appear to have almost completely bridged the gap.

The question is, what’s in it for Bain? Market performance of UK’s car and home insurance companies has been mixed this year, with Esure’s larger competitors Admiral Group (shares +1.2% YTD), RSA Insurance (+0.46% YTD) and Direct Line Insurance (-13% YTD) disappointing shareholders.

Bain Capital’s offer represents the private equity firm’s confidence that Esure’s 12% growth in gross written premiums(which missed market’s expectation of 14% growth to £447m) so far this year is poised to materially improve under new management. They are also banking that costs related to exceptional events like this year’s Beast from the East can be contained. Otherwise, the weather will continue denting not just cars, but also Esure’s profit margins.

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