The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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The companies putting themselves up for sale are only one half of the London market M&A story, but in recent months they have received more attention, threatening to overshadow their would-be acquirers.

And for every Jubilee and Omega there is at least one trade company or private equity outfit on the lookout for a good deal, and a number of them have approached more than one of the target businesses.

The buyers break down into four subsets. There are trade buyers backed by private equity houses, London-listed trade buyers, US-based insurers and more straightforward private equity buyers.

On the trade side, private equity-backed (re)insurer Torus has been conspicuous on the M&A scene this year in London. It was pipped to the post on the Jubilee deal by Ryan Specialty Group earlier in the year and has since demonstrated its continued appetite for M&A by looking at Sagicor and a number of other Lloyd's deals. With First Reserve, one of the world's 10 biggest private equity companies, as a backer, Torus has no shortage of firepower.

Perhaps one notch down on the scale of acquisitiveness is Bregal Capital-controlled Canopius, which has demonstrated a desire to grow by acquisition throughout its history. It was created by a management buy-out of Lloyd's managing agent Trenwick in 2003. It then added Creechurch in 2006, before picking up distressed motor insurer KGM last year.

Click to enlarge Canopius has been looking assiduously at possible combinations or takeovers in the London market for some time and was also involved with the Jubilee auction process. But its most ambitious play has been for stock exchange-quoted Omega - a gambit that is now drawing close to the critical period.

Barbican, which is backed by Texan private equity firm Carlson Capital, is also hungry for a deal, although its ambitions are hampered by its lack of ready cash and the impression that it is coming from a position of weakness.

Beazley and Novae fall into a different category due to their status as listed companies. Beazley has shown its appetite for a deal in its approach to Hardy, but management seems determined not to push through a takeover merely for the sake of doing a deal.

Novae has come through a number of uncertain years when its future as a live company was in serious doubt. But even now that it is on the other side of those problems and has mostly implemented a plan to crank up its return on equity, Novae finds that its valuation continues to lag. It recognises as well that the small, standalone, listed Lloyd's carrier is increasingly an anachronism. The goal for the management, headed by Matthew Fosh, is to go and get a good deal through for shareholders.

If Torus and Canopius are trade buyers growing fast at the behest of their private equity owners and Novae a small-cap quoted Lloyd's insurer looking for a transformative deal, Delphi Financial is an example of a US P&C insurer that wants to diversify into London.

After bowing out of the Omega auction due to delays, the company may scrap its M&A plans, particularly due to its desire for a Bermuda-domiciled target.

But there are other US P&C players that fall into the same camp - and indeed listed specialty insurer RLI has taken more than one look at Omega. New York Stock Exchange-listed P&C insurer Tower is also understood to be looking for a suitable opportunity in London as it makes a play for further diversification.

The other buyers out there are more straightforward private equity players.

Mark Byrne's investment vehicle Haverford has been active in London this year. He currently has Omega in his crosshairs and is understood to be in the process of raising finance.

Goldman Sachs' private equity arm and Texas Pacific Group have been sizing up a number of opportunities in the London market as they look for a cat-light specialty insurer to run together with their US specialty carrier ProSight. Goldman Sachs executive Sumit Rajpal has been a frequent visitor to London in recent months and has had conversations with more than one company that is looking for a deal.

Chuck Davis' private equity house Stone Point is a veteran investor in the insurance industry, but at present it looks like its current ambitions to take over Lloyd's managing agent Whittington will be thwarted after it was frozen out by the conferral of exclusivity on Tawa.

Ascot founder Martin Reith and former Guy Carpenter CEO David Spiller are both thought to be looking to spearhead bids for Lloyd's platforms. Reith is said to be working with another stalwart industry investor, Cap Z, although it is less clear where he would find the rest of the money for a deal. Even less is known about Spiller's means, but sources active in the M&A market believe that he is working on a return.

Aquiline and Terra Firma round out the list. The current appetite of these PE houses for insurance investments is a matter for debate, but each has demonstrated in the last year - by reference to Omega and Chaucer - that it thinks that value can be unlocked from discounted small-cap listed Lloyd's insurers.

Brit acquirers Apollo and CVC are ostensibly sitting on the sidelines while they digest the top-10 Lloyd's insurer, although there is a widespread expectation that they will look to add subsequent acquisitions.