AmTrust Financial Services, inc. has entered into an agreement with Madison Dearborn Partners (MDP), which sees the former transfer 51% of its equity in certain interests in U.S.-based fee businesses to MDP, with AmTrust receiving gross cash proceeds of $950 million from the transaction.
The transaction values the business at up to $1.15 billion, plus a further $50 million on exit, subject to agreed thresholds. AmTrust will receive gross cash proceeds of $950 million, which is a combination of MDP’s approximately $210 million equity investment, and debt borrowings by the new business.
The remaining 49% equity interest will be retained by AmTrust, which enables the company to participate in the future growth of the business. AmTrust has said that it will use the net cash proceeds to target an operating return on equity (RoE) of 12% to 15%, via organic growth, capital allocation opportunities, and the consideration of alternative reinsurance arrangements.
In the LTM June 30th, 2017 period, the U.S. fee businesses generated after-tax net income for AmTrust of roughly $53 million, and the firm expects these transferred fee businesses to drive roughly $750 million to $800 million in gross written premiums for AmTrust in 2018.
The company will operate under a new brand name, which is to be announced at a later date.
AmTrust’s Chairman and Chief Executive Officer (CEO), Barry Zyskind, said; “This transaction creates value for all parties. For AmTrust, it delivers on our stated objective to unlock the value of our Fee Businesses, while also enabling AmTrust to participate in the future success of the new company and ongoing upside as a significant shareholder.
“The transaction also aligns with our recent initiatives to further strengthen our balance sheet and simplify our organization, and provides us with capital to support AmTrust’s meaningful organic growth opportunities. As a deconsolidated business, we believe this portion of the U.S. Fee Businesses will be better able to pursue its growth avenues. We believe this transaction also demonstrates the value of the fee businesses in the U.S. and internationally that AmTrust is retaining.”
AmTrust’s Executive Vice President (EVP) and Chief Financial Officer (CFO), Adam Karkowsky, added; “The U.S.-based Fee Business is a market leader with a talented and experienced team who has cultivated a strong, growth-oriented culture, premier partnerships and numerous expansion and acquisition opportunities. MDP is a strong partner with deep insurance services expertise. MDP shares our vision for success and ongoing value creation, and has a strong commitment to our business partners, customers, and employees.
“We remain committed to supporting these businesses and our customers through our underwriting platform, products and services, as evidenced by the significant ownership stake we have retained in the new structure. We are very excited about the prospects of this business in its new form.”
While Managing Director of MDP’s Financial & Transaction Services team, Vahe Dombalagian, said; “We are excited to partner with AmTrust and form this new company and have it be a part of our portfolio of leading insurance services providers.MDP has extensive experience investing in this market sector and a proven track record of successfully managing corporate carve-outs.
“We will utilize our resources and expertise to sharpen the new company’s focus on accelerated product innovation and market expansion, unleashing the business’s full potential, and obtain synergies inherent in the business, creating more opportunities for employees and deepening our client-partner relationships. We look forward to great success working together with AmTrust and the new company’s executive team.”
