Despite AUB Group’s initial intention to relinquish full ownership of the Tysers retail business, circumstances have evolved significantly in the past year. As a result, the decision to abandon the joint venture plan has garnered a cautiously positive response.
The proposed joint venture with PSC Insurance Group, which possesses existing UK retail operations, aimed to mitigate risks and alleviate any concerns among investors regarding AUB’s significant $880 million international expansion. This expansion primarily relied on the advantageous aspects of Tysers Lloyd’s wholesale operations.
However, joint ventures come with their own limitations and uncertainties. Despite this, Tysers has demonstrated favorable performance since the deal was announced, and market conditions have been supportive, further bolstering the situation.
According to a research note by Morningstar, while not initially a primary focus, retaining full ownership of the retail business does make sense in the current context.
Retaining full ownership of the retail business provides AUB management with the opportunity to explore cross-selling possibilities with its wholesale broking business. Additionally, it grants AUB the flexibility to pursue future bolt-on acquisitions at its discretion. This decision also avoids potential conflicts of interest that could arise if PSC, which already owns its own UK wholesale and retail broking businesses, were involved.
According to JP Morgan, the current funding conditions and investor acceptance of AUB retaining the entire retail business are more favorable compared to when the deal was initially announced in May of last year.
Tysers is showing positive performance as a standalone entity, and there are significant potential synergies to be explored both in Tysers and in the agencies sector. While managing a relatively small overseas business will require resources, AUB has expressed its intention to continue expanding in the market.
JP Morgan maintains a positive view on AUB, highlighting the advantageous impact of favorable interest rates and the potential for margin expansion through strategically targeted mergers.
According to AUB CEO Mike Emmett, the joint venture deal was designed to strike a balance between risk and return for shareholders, taking into account the geopolitical tensions of the time, such as Russia’s involvement in Ukraine. Additionally, it was influenced by potential investor caution arising from previous problematic offshore ventures by Australian companies.
Mr. Emmett expresses that AUB is open to exploring potential bolt-on opportunities for expanding the UK retail operations, which have now been separated from the Tysers wholesale segment. The retail business will function as an independent legal entity, with its own board, including Mr. Emmett among its members.
During an analyst briefing on Thursday, Mr. Emmett described Tysers retail as a mid-sized broking group. He mentioned that while they possess the appropriate scale, their geographical distribution is limited. Therefore, the opportunities lie in acquiring branch bolt-ons that align with their product offerings and customer base.
The business primarily serves a significant number of high net-worth customers and specializes in certain industries within the SME and mid-market sectors. At the time of acquisition, it was disclosed that Tysers had four branches located in central and south-east England.
The initial plan for the joint venture involved a non-binding memorandum of understanding between AUB and PSC. The final agreement was expected to include agreed-upon exit rights and was subject to various approvals, such as board approvals, due diligence, separation planning, regulatory and licensing approvals, as well as documentation.
Mr. Emmett acknowledges that PSC was highly cooperative and supportive during the negotiation process. However, in the end, both parties were unable to reach a mutually beneficial outcome that aligned with their respective strategic objectives.
Ultimately, PSC expressed a desire for full control, but AUB was not willing to completely relinquish ownership. As a result, AUB is now content with retaining the entire business under its ownership.
Analysts will be closely monitoring the situation to observe the future course of action and allocation of management resources. However, AUB remains optimistic and positive about the situation.
Mr. Emmett expressed that Tysers UK retail is a highly appealing business, characterized by significant scale, robust client relationships, and promising prospects for both organic and inorganic growth. He emphasized that retaining the retail business aligns strategically with the Tysers wholesale segment and the overall AUB Group.
Source : insurancenews.com.au