Brit looks to expand after 'hefty' buyout

Brit Insurance is on the lookout for acquisitions to capitalise on low valuations in its "unloved" sector after agreeing an £888m cash sale to two private equity investors.

The Lloyd's of London insurer accepted a £10.75-a-share offer from Apollo Management and CVC Capital Partners yesterday after rebuffing four previous approaches.

The deal includes payment of Brit's 30p-per-share dividend on 7 December. The buyout houses may also pay up to 25p extra per share in cash, depending on Brit's net tangible assets at the end of the year. The price values Brit at a premium of between 47 and 51 per cent of the shares' closing price on 10 June, the day before Apollo's first approach, valued at £10 a share, was announced.

Dane Douetil, the Brit chief executive, said the hefty premium and tough negotiations reflected short-term valuations for non-life insurers suppressed by fierce competition. The sector is awash with capital after two years in which there have been very few natural disasters.

Mr Douetil, who is staying on to manage the company, said: "The sector is unloved and there is a chance to buy other things and build our brand and franchise.

"There is nothing on the radar that we have specifically identified but there is no doubt that smaller companies will be challenged by capital and regulatory requirements, and that will allow people with bigger balance sheets to consolidate."

Brit underwrites more than 70 types of insurance including directors' liabilities, aviation hulls, terrorism and films. Analysts said smaller insurers such as Chaucer and Omega could be in the frame for further takeovers.

Mr Douetil said private-equity ownership would be good for Brit because public markets were "too short term" for a highly cyclical insurer.

"We can pay back capital when we don't need it when conditions are weak and hold on to all our capital when conditions are strong and we can use it to grow," Mr Douetil said. By contrast, investors want public companies to pay a steadily rising dividend and raising fresh capital is drawn out and expensive, he said.

Private ownership will also let Brit build its business for the medium term, he added. "You can do that with the stock market but there is a [tension] between delivering results today and every quarter and investing for the future."

Mr Douetil and his team will invest up to £1.5m in a company set up to own Brit and will share 9.5 per cent of any profits over and above a 12 per cent return on equity.

Brit issued a trading statement showing that the value of gross written premiums fell 8.5 per cent in the nine months to 30 September as prices fell. The company said it had focused on maintaining its margins.