Insurance Australia Group to buy Wesfarmers' Insurance underwriting business

Sydney based, Insurance Australia Group Limited (IAG) has announced the acquisition of Wesfarmers Limited insurance underwriting business for $1.653 billion (A$ 1.85 billion).  Post transaction IAG will become Australia's largest insurer.

Wesfarmers Limited is one of Australia's largest retailers.  Wesfarmers is largest private employer in Australia.  Wesfarmers Insurance is division of Wesfarmers Limited.  The company operates a general insurance underwriting business in the rural, small and medium enterprises and commercial sector.

Insurance Australia Group is a Sydney based multinational insurance giant.  IAG has business operations in Australia and New Zealand and growing presence in Asia.  IAS has business dating back from 1925.  The company is seeking to grow its Australian and Asian operations after selling its UK business last year.

The deal is priced at $1.653  billion.  With this transactional deal Westfarmers will record a pre-tax profit of $670 million.  Moreover company expects to raise $1.072 billion through share sale, to fund the deal.  Post this deal Westfarmers  will have a market share of 27% as compared to current top grosser SunCorp Group Ltd.'s 22%.

Wesfarmers' Insurance return on capital invested was 6.5% over five year period till 2013.  Same was way lower than weighted average cost of capital which was 11.5% for same period.  The deal is a result of this low return venture. 

Sompo Japan Insurance to buy Canopius group

Japanese leading property insurer, Sompo Japan has announced the possible acquisition of Lloyd's of London based insurance and reinsurance group, Canopius.  Deal can be priced at $970 million (100 billion yen) and is expected to be announced with-in a week's time.

Canopius group is Lloyd's of London based privately owned insurance and re-insurance group.  The company underwrites a diversified portfolio of business.  It has gone through series of acquisition following a strategy of organic growth in past nine years.  Canopius operates through Europe, United States, Singapore and Australia.  Company has financial resources more than £500 million.  Canopius has 84% ownership of Bregal Capital LLP.

 Sompo Japan Insurance Inc. is Japanese insurance company and is second largest property insurance company in Japan.  Even Sompo has meaning "property insurance".  Sompo has offices and subsidiaries in 28 countries offering insurance and risk management services.  Sompo Japan is a unit of NKSJ Holdings.  

As of now deal is not finalized.  But as per industry associates, deal can be announced finally with-in a span of week.  Same can be priced at about $970 million.  

In recent years Japanese insurance groups have been trying hard with both organic and green ways to strengthen their base outside Japan.  This is because Japan insurance market is almost stabilized and saturated with ageing population posing challenges towards increasing revenues.   

Avago Technologies to buy LSI Corporation for $6.6 billion

Singapore based Avago Technologies Limited has announced the acquisition of California based LSI Corporation.  The deal value of $6.6 billion ,which Avago is planning to pay in cash.  This is equivalent to $11.15 per share, which is 41% premium to Friday's closing price of LSI Corporation on NASDAQ.

LSI Corporation was founded under name of LSI logic in 1981 as a semiconductor company.  As of now LSI designs and develops semiconductors and software that accelerate the storage in data centre and mobile networks.  

Avago Technologies is leading designer and developer of analog and optoelectronics components and sub-system.  SilverLake bought Avago from KKR and took public with-in three years.  SilverLake sold the holding last year but retained one board seat.  This deal is called SilverLake's best deal ever, generating return of over five times the initial investment.  

Under terms of the deal, Avago will pay $11.15 per share.  Moreover SilverLake will invest $1 billion as convertible notes.  These carries a coupon of 2% and conversion price of $48.04 per share.  This transaction is expected to strengthen and broaden Avago's product base.  Also it is expected to provide economies of scale to the company.  

KKR to buy KKR Financial Holdings for $2.6 billion - all equity transaction

Kohlberg Krevis Roberts (KKR) has announced to acquire its separately listed speciality finance company and credit affiliate KKR Financial Holdings LLC (KFN) for an all equity transaction worth $2.6 billion.  

KFN was launched by KKR in 2004 to invest primarily in corporate loans and bond instruments.  Although it still has a low market cap of $1.9 billion as compared with that of KKR's market cap of $17.7 billion.  Under terms of the deal, KKR will issue 0.51 shares in lieu of each share of KFN.  As per Monday's closing price it values the KFN at $12.79, a premium of 35%.  After this announcement, shares of KFN rose by 31% and that of KKR dipped marginally. 

KKR plans to distribute 100% of investment income it receives as part of KFN business as dividends to KKR shareholders.  As per such involvement, KKR's dividend is expected to be 7% higher.  KFN wa trading at 90% of its book value despite of its high dividend yield of 9.2%.  Moreover, KKR is paying KFN 1.15 times its book value.  

Post transaction, KKR's exposure to private equity will dilute from 68% to 44%.  Moreover as of now KFN's assets are taken care of by KKR's staff only.  Therefore there is very little integration risk available in the deal.  Goldman Sachs is the leading advisor of KKR for this transaction.   

AIG to sell ILFC for $5.4 billion

New York based multinational insurance giant, American International Group (aka AIG) has announced to sell majority stake in its aircraft leasing unit International Lease Finance Corp. (ILFC) to AerCap Holdings, for $5.4 billion.  AIG has been trying to sell stake in ILFC since the global economic meltdown in 2008 when AIG came around near-bankruptcy and government bail out was done.

International Lease Finance Corporation is a leading aircraft lessor based in California and is the largest aircraft lessor in value terms.  It leases Boeing and Airbus aircraft to leading airlines across the globe.  The company was acquired by AIG in 1990 for $1.3 biilion in stock swap.  While AIG was going through the worst fortune of its history it tried to come out of non-core operations i.e. non-insurance operations.  In September 2011, company tried to spun off ILFC through a initial public offering.  But same was not materialized.  Thereafter, company announced the sale of 90% of stake in ILFC to consortium of Chinese companies to repay its government bailout of $182.5 billion.  But same was backed up by August 2013.

Although the deal announced now also faces a lot of regulatory approvals, both US and international, and if cleared it will close in Q2 2014.  ILFC owns a fleet of 989 aircraft.  A sper the terms of the deal, AIG will get $3 billion in cash and 97.6 million shares of AerCap Holdings i.e. 46% of AerCap's stock.  Apart from this AIG has also agreed to provide $1 billion five year unsecured revolving credit facility when the deal closes.

AerCap is the world's largest aircraft leading company in value terms.  It is head-quartered in The Netherlands.  Its fleet comprised of 337 aircraft.  Out of these 250 are owned by company and rest are managed on behalf of third parties.

As per company management, this transaction provides strong foundation for ILFC for continued market leadership and growth.  Company will, after this merger, be more strategically positioned to take on formidable rival GE Capital Aviation Service with fleet size of 1700 aircraft.

In Moday trading shares of AIG rose by 2.2% and AIrCap's stock by 33%.  It seems to be a win-win situation for both companies.   

KKR provides conditional commitment to WMI Holdings Corp.

WMI Holding Corp., fka Washington Mutual Inc, provider of financial services to individuals and small businesses, today announced that KKR & Co. L.P. has entered into a conditional commitment letter to make a strategic investment in the company.

WMI holding Corp. has major business chunk though WM Reinsurance Company, Inc. domiciled in Hawaii.  Apart from this company provides financial services consisting of mortgage banking, consumer banking , commercial banking and consumer finance to individuals and small and mid sized businesses.

KKR & Co. L.P. is a leading global investment firm with $90.2 billion in AUM as of September 30, 2013.  KKR seeks to create value through operational excellence in its portfolio companies.

As per this agreement, KKR has agreed to purchase $10.55 million worth of convertible securities at price per share of $1.10.  Apart from this KKR has also committed to purchase additional subordinated 7.5% PIK notes worth principal amount $150 million.  Apart from this KKR would have the right to partcipate upto 50% of equity offering capped at $1 billion.  KKR will provide deep opportunity to WMI with its deep experience across different asset classes.

Blackstone Advisory Partners L.P. are the advisor for the company for this transaction and strategic investment.  

Texas community bank closed : 24th in the year List, is it towards end of community banks ?

Woodlands based Texas Community bank NA was closed and taken over by Federal Deposit Insurance Corporation (FDIC).  Out of $160.1 million of bank's asset, $147.9 million of assets have been purchased by Spirit of Texas Bank.

On Friday December 13, 2013 Texas Community bank NA was closed by Office of the Comptroller of the Currency and same has been handed over to FDIC.  No prior notice was given to any of bank's customer.  Although FDIC issued a notice reassuring all customers of bank regarding the safety of their assets.  All deposit accounts are immediately transferred to College Station based Spirit of Texas Bank SSB.  All the branches of  Texas Community bank will reopen as branch of Spirit of Texas Bank, which has 8 locations in Houston area. 

As of September 30, 2013 Texas Community bank had $160.1 million in total assets and $142.6 million in total deposits.  Spirit of Texas Bank has agreed to purchase $147.9 million of failed assets of former bank.  The rest will be taken over by FDIC.  Although it is not a major set-back for FDIC, as it have only $10-11 million impact on deposit insurance fund.  

But the small impact is not the end of the story.  This is 24th bank in this year to be taken over by FDIC.  Apart from community banks there are many small financial institutions that are struggling to operate.  So now the future lies in big institutions. Can we see more consolidation in near future ?

Global Payout and CCS Prepay announce joint venture

Global Payout, Inc. and CCS Prepay UK Ltd. has announced the joint venture agreement to pool their US and international debit cards' product and resources, in order to strengthen the product base and more efficiently support client requirements.  

Prior to this, last month, during mid November both companies have signed a product sharing agreement on an EMV Visa international debit card with a partner bank in Europe.  By the end of this month companies expect to complete the joint venture with the effective terms and conditions.  

This joint venture will enable both companies to share their product details and specifications with the other party.  Moreover it also allows each company to deploy the other company's prepaid product to match and best fit the new client needs, as and when such situations arise.  As per both company's management, though the product offering by both companies vary across many factors but they are complimentary to each other.  They are expecting to share new revenue stream in competitive situations.  It will be a win-win situation case for both client and company.  

As market of the prepaid card has started to mature, this move has been looked as going out of coveted geographic areas and look for other venues for sale and client base.  The move will help both companies to leverage not only technology expertise but also become strategic partner for long.   

QuickPay Corp. raised $5.5 million funding

Mobile parking payment solution provider, QuickPay, has raised $5.5 million funding from Fontinalis Partners, Ecomobilite Ventures and IncWell.  The new funding is aimed to increase the base of company across more cities in United States.  

QuickPay was founded in 2010 with a vision to leverage trends in mobile technology to remove the atrocities of finding, paying and accessing parking space across States. The unique mobile application provides its users the facility for finding, paying, opening parking gates via their mobile phone.  Same application works for parking owners in the reverse manner as it let them access the details of parking space more efficiently.  Prior to this QuickPay has received $3.5 million in seed funding.  

As per company management smart parking is a segment of nest generation mobility solutions.  Moreover the internal investors are too happy with QuickPay's success till date.  QuickPay has recently announced the partnership with ABM parking services which operates 2000 parking location across United States.  Apart from this company has also partnered with Impart, which is a leading provider of parking space across Canada.      

Torrent Pharmaceuticals deal with Elder Pharmaceuticals' worth Rs. 2004 crore

Mumbai based Torrent pharmaceuticals has announced the acquisition of Mumbai based Elder Pharmaceuticals' branded domestic formulation business in India and Nepal for Rs. 2004 crore.  

Elder pharma's Indian business comprises a portfolio of 30 brands including market leading brands in women healthcare, pain management and wound care.  Torrent with a turnover of Rs. 32,000 crore will fund the acquisition with internal accruals and bank borrowings.  Under the proposed transaction, Elder pharma which has six manufacturing facilities will for the next 3 years continue to manufacture and supply the products for Elder pharma. The business currently stands at Rs. 500-600 crore out of total Rs. 1000 crore domestic formulations business.  

But market is not able to grasp the know-how of the deal. Elder pharma lost more than 8% and Torrent too lost more than 4% on day of acquisition.  For Elder pharma the major part of Rs. 2004 crore will be moved towards debt i.e. Rs. 1148 crore, while Rs. 500 crore are current liabilities.  Moreover now company is left with its 40% business which mostly is low margin based.  These businesses segments are anti-infective and contract manufacturing segments. 

Torrent too will have a effect on its balance sheet.  Current debt of Rs. 913 crore and debt to equity of 0.4 are both poised to increase after this acquisition.  This has led analysts for concern.  Moreover Torrent's margin were always higher than Elder's margins and this will also put a strain on profitability.  While Torrent works on average 22-23% margin, Elder pharma has at-most 16%.  

Analysts are divided on valuation of the deal too.  This deal was supposed to value around Rs. 1700 crore initially but finally landed for over Rs. 2000 crore.  The deal now implies 3.9 times sales and 17.5 times EBITDA, which is on a higher end as per industry multiples.  But apart from this it is expected that Torrent will be able to ramp up the operation better than Elder Pharma and this will, in long run, make this deal a win-win situation for both the companies.     

Citi Community and Enterprise community loan invests $30 million in New Next street opportunity fund

Citi community capital and Enterprise community loan fund has announced to invest $30 million together in the New Next Street opportunity fund.  This fund is aimed at helping small businesses across New York city and Boston area.

Next Street Opportunity Fund combines growth financing with the management expertise that new business owners need to overcome and tackle the challenges of tough business environment.  Next street has helped businesses since 2005, but Next street opportunity fund is a new offering.  This program is designed for businesses with revenue $3 million to $60 million.  Citi Community capital and Enterprise community loan are capital partners of this fund.

Next street serves as strategic advisor apart from capital provider for a business owner.  They act more-or-less like a private equity fund without the equity participation.  This makes Next street more attractive and favourable for small businesses as they do not eat-up the equity part.  All the three partners are hopeful of the success of the model and expects it to soon move to other cities apart from just in New York city and Boston.

Coinbase raised $25 million : Highest ever for a Bitcoin company

Although Bitcoin may be moving from a volatile period after chinease regulatory crackdon, but Bitcoin wallet is not a fad.  This has been proved by Coinbase, which has raised $25 million through venture capital funding. This is secound round of professional funding for Coinbase and highest amount received in funding by any Bitcoin startup.

Coinbase was founded in 2012 and is headquartered in San Francisco.  Users of Coinbase can create their e-wallet and sell and buy bitcoins in exchange for US dollar at current market exchange rate.  The e-wallet can be used for storing and transferring Bitcoins.  Coinbase is sometimes referred as Paypal of Bitcoin, as it makes technicality of Bitcoins quite simpler for novice users.  As of December 2013, company has 500,000 users and 16,000 merchant accounts.  A of May 2013, Coinbase was servicing $15 million Bitcoin transactions per month.  

 Coinbase received $600,000 in seed-funding in September 2012.  This was followed by $6.11 million funding through first professional round of venture capital funding Series A.  Now company has raised $25 million through Series B round.  It was led by Andreessen Horowitz along with participation from existing investors Union Square Ventures and Ribbit Capital.  As per company, they are averaging for 10,000 signups per day.  

Kiva gets $3 million Google Global Impact award : Kiva Labs in making

A non-profit organization which let people lend in micro terms among each other has won Google Global Impact award worth $3 million.  Kiva has won the award to build Kiva Labs.

Kiva Labs is new initiative that aims to generate $25 million in loans for clean energy, mobile energy and agriculture over the next three years.  The initiative aims to have maximum impact on lives of poor.  Kiva leverage the power of internet and a worldwide network of micro-finance institutions to let individuals lend as little as $25.  A lender can choose the project in which he want to invest/lend.  This provides loan to people who typically are outcasted from particular country's financial ecosystem.  Moreover Kiva does not charges for its own.

With this new initiative namely Kiva labs, company is planning to lend money to 100,000 borrowers.  Kiva is also planning to experiment with some new financial products to check which one works.  These crowd-funded loans would help initiatives from clean energy, mobile information and other transformative technologies.  As per co-founder and President of Kiva, Premal Shah, Kiva's crowd-funded loans provide a unique opportunity to increase opportunity to increase access to products and services that have high potential for success.  

Today Kiva operates in 70 countries with a network of 230 organizations providing micro-finance.  Kiva is largest crowd-funding platform for social good with 99% repayment rate.

    

Moody acquires Amba Research : Powerful entry in Investment Research Analytics

Global Credit rating agency Moody's Investor Service has announced the acquisition of Amba Research Investment Ltd., a KPO firm providing investment research and quantitative analytics support services to global capital market industry, for an undisclosed amount.

Amba Research was founded in 2003 by four senior directors of Goldman Sachs, J P Morgan and Deutsche Bank.  Company entered India in 2005, two years later of opening first delivery centre in  Sri Lanka.  As of now company has delivery centres in Costa Rica, Sri Lanka and India.  Amba Research was backed by Helion venture fund I, which invested $10 million in 2007 in the company.  Company is expected to generate $39 million revenue in 2013.

Company routed this acquisition through Copal Partners in which Moody owns majority stake.  It was acquired by Moody in 2011.  The deal is financed by cash and is unlikely to have a major impact on EPS of Moody.  The deal will strengthen Moody's research and analytical capabilities through Copal Partners.  Also Copal Partners will also be in advantage as now being leading outsourcer to corporate finance and asset management customers. 

As per unofficial sources, the deal value is $80 - 85 million. Mayer Brown acted as legal advisor to Moody while Amba was advised by investment bank Avendus capital and law firm Jones Day