Good move by Sagicor on Playa
THERE IS a point in the life of a business when it is regarded to have achieved what is called critical mass, meaning a superlative competitive size or stature.
In a very short time span, Sagicor Jamaica Life Insurance Company expanded its investment footprint in the resort hotels sector in Jamaica, creating the generic Jewels chain hotel resort brand. It did so by acquiring and transforming properties that were performing way under par. Now it is selling the chain to the Playa Hotels Group of Mexico, which is very much on point, as I shall explain.
Life insurance companies mobilise savings, mainly to meet long-term goals, like college education for children, and to mitigate sudden misfortunes, including death of a main breadwinner. The likelihood of these funds being called on in the short term is less than it is for other institutions, like banks. However, the benefit sold disposes the life insurance company to bigger claims.
The mix of investments held by the life insurance company reflects the prudence of its organisation to meet its obligations. Cash is king, but high inflation rocks the throne, quite easily, and can create vacancies, in rapid succession.
The Sagicor X Fund, in which the resort hotel investment is concentrated, performed exceptionally well. The latest addition to the portfolio was the Holiday Inn-managed Doubletree Hotel in Florida.
Some people are up in arms about the sale to Playa, because it appeared to double back on an earlier announcement by Richard Byles, who retired as CEO and became chairman since, that, rather than what to critics seem like retreating, Sagicor would expand its footprint in the resort accommodation business. Admittedly, I shared the sentiment, initially.
BIGGER FOOTPRINT
Disclosure of details of the deal with Playa changed my position. The deal is worth US$310 million and includes a 14 per cent holding of Nasdaq quoted Playa stock, currently trading at US$10.49. The latter will indirectly give Sagicor an enviable bigger footprint in the global resort industry, through Playa.
Life of Jamaica, formerly Jamaica’s leading life insurance company, was sold to Sagicor Corporation of Barbados, which rebranded the company. Several other well-known Jamaican life insurance companies, including Island Life, were bundled with the local business of American Life Insurance Company (Alico), in the sequel of the FINSAC fiasco, by a Jamaican Government fire sale that gave Sagicor Barbados control of them. Similarly, Jamaica Mutual Life, dumbfoundingly, was sold to its former subsidiary, Guardian Life of Trinidad.
First Life Insurance Company, part of the Pan Jam Group created by late property development tycoon Maurice Facey, having, apparently, exercised greater fiscal prudence, was not a casualty of FINSAC. It chose, for a number of years, subsequently, to narrow its focus to its group life and health insurance business.
It built up a substantial cash mountain for which Richard Byles, as Pan Jam CEO, at the time, shared the credit. When the time was right, Pan Jam made a pitch for a huge stake in Sagicor Jamaica that, combined with the minority holding of Life of Jamaica founder R. Danny Williams and other Jamaican parties, restored control to Jamaican interests. First Life merged with Sagicor and Byles became CEO in the trade-off.
Pan Jam has leveraged its strength of cash from its operations, and handsome dividends from investments like Sagicor, to partner with the Marriott International hotel chain, which entered the business travel end of the Jamaican hospitality tourism market with a newly constructed Marriott Inn Hotel in New Kingston. Also pending is the renovation and rebranding, as the Marriott Kingston Hotel, of the former Oceana Hotel on the Kingston Waterfront, purchased from the Urban Development Corporation.
There are also plans for a new hotel for the Freeport resort and commercial locale in Montego Bay. This means Sagicor could be substantially tied directly, still, to the hotel business, through its major shareholder Pan Jam, while holding on to its hotel in Florida.
I see this as a win-win for Sagicor, as well as for its policyholders and shareholders. Once again, visionary leadership that makes it leader by a length has been manifestly demonstrated in the stroke of genius sale to Playa.
I give it the thumbs up!