M&A activity hots up in insurance sector
City: 

The insurance sector is in the thick of M&A activity. Companies that are seeing hectic mergers & acquisitions (M&A) bids include Star Health & Allied Insurance Co, IDBI Federal Life Insurance Co, Royal Sundaram General Insurance Co and Policybazaar Insurance Web Aggregator.

The insurers have been in discussions with various suitors for months now but no deals have yet been sewn up as the companies are seemingly waiting for better valuations considering their future growth potential.

Private insurance companies have been clocking good growth in the past few years and the outlook too is bright for the sector, with fresh money coming into many of the companies from the foreign partners after government relaxed the FDI norms in February 2016, allowing foreign investment of up to 49 per cent through the automatic route.

“Both life and non-life sectors have a good number of players and many have the strong backing from their foreign partners. It is not easy for a company to start fresh, get licence and build an entity. Hence, we see a rush to grab whatever is put up for sales. We have seen investors looking for stake in insurance companies earlier also. But this time we are seeing many discussions steadily progressing towards a fruitful completion,” said Sanjay Pande, executive director, Finsall Networks, an insurance consulting firm.

With several entities coming forward to take over Chennai-based Star Health, the company is keen to wrap up a deal in a month’s time. “There are a few bidders. We will have to evaluate the bids and by a month’s time the picture will be clearer,” V Jagannathan, chairman and managing director of Star Health, told Financial Chronicle.

The promoters and investors had put up the company for sale a few months back and Kotak Mahindra Bank is overseeing the sale process. The promoters and investors are interested in selling the entire stake in the company and welcome a new set of investors. Star Health has secured a significant position in the health insurance segment, but has no foreign partner. Around 12 bidders have showed interest in buying stake in the company. This includes ICICI Lombard, WestBridge Capital and Prudential. Media reports have suggested that ICICI Lombard has made a Rs 6,500-crore bid for the company and West-Bridge Capital, together with ace investor Rakesh Jhunjhunwala, was also trying to put in a matching bid.

Jagannathan owns 3.5 per cent stake in the company while Sequoia Capital, ICICI Venture, Tata Capital Apis and Oman Insurance Company together own about 70 per cent. The remaining stake is held by Dubai-based ETA Trading.

“Star Health's books have become much healthier in recent times. It has de-risked the business by focusing on retail insurance. The government-sponsored health schemes have been weighing heavily on the books earlier,” said Pande.

Similarly, IDBI Federal Life, which is put up for sale by parent IDBI Bank, has the advantage of a strong bancassurance channel. IDBI Bank owns 48 per cent stake in the company. IDBI bank has been put on prompt corrective action (PCA) by RBI due to its rising bad loans and negative returns on assets. Tata AIA Life Insurance, Kotak Mahindra Life Insurance, Aditya Birla Sun Life Insurance and Exide Life Insurance have shown interest in bidding for the company. As per sources, a decision on the successful bidder will be taken by May 31 and in case the decision gets extended, it would not go beyond June 30 as per the mandate given to the merchant bankers. The other two partners, Federal Bank and Belgian life insurer Ageas would take a decision on stake sales if they arrive at the right prices, sources said. Partners want the embedded value derived out of its distribution channel to be considered to arrive at the pricing.

In the general insurance space, Royal Sundaram has received a bid from private equity firm True North for purchase of 40 per cent stake. Multiples Asset Management of Goldman Sachs too is eying share in Royal Sundaram.

While most of the insurance companies saw the foreign partners increasing stake, Sundaram Finance had bought back the entire 26 per cent equity stake held by UK-based Royal & Sun Alliance Insurance (RSA) in the insurance company in 2016. Hence, the company is interested in parting with part of the stake to raise funds. The companies are also bouyed by the good responses some of the leading insurance players received for their IPO.

There are reports that Japan’s Softbank Group is keen to invest in India’s insurance sector and has struck a deal to invest in $200 million in Policy Bazaar, but no official confirmation of this is available.