The announcement will scotch rumours that the group is arranging a management buy-out of the business.
Colleagues was floated in February 1995 at 115p a share, valuing the business at pounds 26m. It is now worth pounds 15.5m.
The operation was heavily reliant on one blue-chip account, Sun Life, which was contracted to handle nearly all of the insurer's print buying and direct mail. Sun Life contributed over 50 per cent to the group's pre-tax profits at the time of the listing, although a much lower proportion of turnover, and Colleagues made margins of 30 per cent on this mainstay account. When the extent of Colleagues' dependency became clear to Sun Life, it decided to rein in expenditure.
The result was an immediate hit to the bottom line. Last August, the group announced the first of three profits warnings. The shares collapsed from 148p to 107p. The first problem was a Post Office strike. Barely a week later, chairman James Robson had to issue another warning, stating that Sun Life had cut spending, to the tune of pounds 7m.
In November, the group warned that "accurate forecasting for 1997 is particularly difficult".
The shares hit a low of 51p in January, and pre-tax profits in 1996 fell to pounds 1m from pounds 3.86m. Since then, shares have edged back, helped by the rumoured management buy-out, and now stand at 68.5p.
The US buyer wants to build up a presence in the UK. The deal is also understood to satisfy the Colleagues management's desire for a return to private status. The glare of a stock market quotation was believed to be one of the reasons why Sun Life was able to quantify the profits Colleagues was making out of it.
Mr Robson has been locked into the group with a deal to retain his services, sources say.
The biggest question for investors, and advisers Panmure Gordon and NatWest, will be whether they can persuade the bidder to pay a price that reimburses investors who paid 115p at the time of the flotation.
Directors who held shares in the group, however, as well as backers before the flotation, have already made significant returns on the business.Reuse content