TimesSquare Capital Management, LLC, an institutional asset management firm with a 1.9% stake in RenaissanceRe Holdings Ltd. (RenRe), has penned a letter to RenRe’s Board of Directors urging them to consider a potential sale to boost the valuation of the company.
The Wall Street Journal reported earlier today that RenRe was rumoured to be under pressure from TimesSquare, but the investor has now issued a public statement and released the details of a private communication from September 7, 2018.
In the earlier communication, TimesSquare said that it had “witnessed a structural transformation of RenRe’s core property catastrophe reinsurance business” that had resulted in an “adverse impact on the long-term risk-adjusted returns achievable in this business.”
This transformation has been driven primarily by the growing impact of alternative capital on reinsurance pricing, TimesSquare said, and has left shareholders with a “diminished conviction that RenRe’s share price will appropriately reflect intrinsic value.”
In order to maximise value for shareholders, TimesSquare requested that RenRe launch “an active competitive sale process” which it claimed would likely yield a significant control premium over the company’s current share price.
“We believe there are a number of potential acquirers that would covet RenRe’s dominant and unique position in third party capital management,” TimesSquare said, “as well as the Company’s proven track record of superior underwriting, risk management and tangible book value per share growth.”
TimesSquare noted that, whilst it appreciated the benefit of RenRe’s positioning as one of the last remaining stand-alone reinsurers, mergers and acquisitions (M&A) deals over the past two years have seen peer companies purchased at increasingly large valuation multiples.
For example AXA’s acquisition of XL Group valued the company at a 1.51x price-to-book multiple and a 1.96x price-to-tangible book multiple, while AIG’s acquisition of Validus was valued at a 1.34x price-to-book multiple and a 1.56x price-to-tangible book multiple.
Analysts at KBW said earlier that they believe RenRe could likely be sold for a valuation that would exceed the multiple of the AIG and Validus deal.
TimesSquare also compared a comparable transaction average of a 1.45x price-to-book multiple and a 1.65x price-to-tangible book multiple with RenRe’s valuation of 1.20x and 1.28x respectively at 7 September 2018.
TimesSquare has been invested in RenRe since 2008, but this push marks the firm’s first public instance of taking a known activist role in an investment.
Although RenRe has not yet commented on the rumours, Chief Executive Kevin O’Donnell said in a July earnings call that he was optimistic about the company’s future as stand-alone reinsurer despite the “pessimism permeating today’s market.” RenRe currently has a market value of around $5.3 billion.
