More ac­qui­si­tion than merger

The ra­tio­nale for the Al It­ti­had al-Watani takeover by NASCO In­sur­ance Group

Executive Magazine - - SPECIAL REPORT -

The sale of Al It­ti­had al-Watani In­sur­ance evolved over sev­eral years and was ru­mored in the Le­banese mar­ket to in­volve a num­ber of val­u­a­tion is­sues be­fore cul­mi­nat­ing in an ac­qui­si­tion by NASCO In­sur­ance Group. NASCO, whose found­ing pur­pose was bro­ker­age ac­tiv­ity and whose main fo­cus is in­sur­ance broking, pur­sued the deal on the grounds that un­der­writ­ing is be­com­ing more and more heav­ily reg­u­lated and cap­i­tal in­ten­sive.

Not all that much was pub­licly known about the ne­go­ti­a­tions for the sale of Al It­ti­had be­fore NASCO came to the ta­ble. Ac­cord­ing to a doc­u­ment is­sued in Au­gust 2015, Colina Hold­ing, a Mau­ri­tius-based sub­sidiary of Morocco’s Sa­ham Hold­ing – which con­trolled 81 per­cent of Le­banon-based LIA In­sur­ance in 2012 – was seek­ing a $30 mil­lion loan from Sa­ham un­der the rules of the Mau­ri­tian stock ex­change. The loan’s in­tended use was for the pur­chase of the 94 per­cent stake in Al It­ti­had re­cently taken over by NASCO.

This fits with the fact that talk about the ne­go­ti­a­tions be­tween NASCO and Al It­ti­had was present in the Le­banese mar­ket for sev­eral years. Ac­cord­ing to Marc Abi Aad, the Beirut-based man­ager of group cor­po­rate de­vel­op­ment at NASCO In­sur­ance Group, the process of due dili­gence was lengthy, but this was be­cause of the com­plex­ity of the trans­ac­tion rather than other fac­tors. He said the du­ra­tion of ne­go­ti­a­tions was not caused by di­verg­ing views on the pur­chase price, which he de­clared to have been fair to all par­ties, but the amount of which he was not au­tho­rized to dis­close to Ex­ec­u­tive. “The due dili­gence was a com­plex process of an­a­lyz­ing the com­pany; it was purely a tech­ni­cal chal­lenge. The amount of data that we needed to process and the amount of prepara­tory work that needed to take place took a long time,” Abi Aad said.

The rea­son why the group stayed with the process is clear from the num­bers re­lated to Al It­ti­had’s op­er­a­tions in Dubai and the United Arab Emi­rates. NASCO’s in­sur­ance broking op­er­a­tion made close to $500 mil­lion in trans­ac­tions glob­ally in 2016. In the UAE it acted as an agent for two lo­cal in­sur­ance com­pa­nies, Abu Dhabi-based Al Wathba Na­tional In­sur­ance Com­pany (AWNIC) and Emi­rates In­sur­ance Com­pany (EIC). NASCO wrote about $45 mil­lion last year in busi­ness as agents of the two in­sur­ers.


In the UAE, NASCO has achieved good an­nual rates of growth over the past few years – as have NASCO units in most GCC coun­tries and cer­tain other mar­kets – but it could not ad­dress the lo­cal mar­ket di­rectly or ob­tain a new li­cense due to re­stric­tive li­cens­ing prac­tices in the Emi­rates. Al It­ti­had’s UAE op­er­a­tion showed im­pres­sive an­nual growth in its un­der­writ­ing and, ac­cord­ing to Abi Aad, grew from $33.7 mil­lion in pre­mi­ums to $43.8 mil­lion in five years.

This has very pos­i­tive im­pli­ca­tions for the group’s mar­ket po­si­tion after the ac­qui­si­tion. “The im­me­di­ate po­ten­tial we have for Al It­ti­had by in­ject­ing the NASCO port­fo­lio would pro­pel the in­surer to rank be­tween 15th and 16th po­si­tion in the UAE mar­ket, by dou­bling its pre­mium vol­ume to $88 mil­lion. This process will start in 2017, and it will be ex­pected to reach full in­te­gra­tion in 2018,” said Abi Aad.

He fur­ther ex­plained that be­sides a boost of about 10 places in its mar­ket po­si­tion com­pared with listed UAE in­sur­ers, the ac­qui­si­tion will open the door to syn­er­gies, be­cause NASCO has a re­gional plat­form as a bro­ker and un­der­writer through Beirut-based Bankers In­sur­ance. He con­firmed that “hav­ing Al It­ti­had on board will def­i­nitely open new op­por­tu­ni­ties for NASCO,” adding that the port­fo­lio of Al It­ti­had will ben­e­fit from ac­cess to NASCO’s re­gional plat­form for in­ter-com­pany busi­ness re­fer­rals. “The vol­ume of re­fer­rals within the group is high and pick­ing up [fur­ther],” he noted.

In all this, NASCO does not har­bor an ex­pec­ta­tion to lasso the moon above Dubai or Abu Dhabi.

Talk about the ne­go­ti­a­tions be­tween NASCO and Al It­ti­had was present in the Le­banese mar­ket for sev­eral years

“We know our place as un­der­writ­ers and will not com­pete even for a po­si­tion in the top-ten in­sur­ance com­pa­nies in the UAE mar­ket, but we want to ex­ploit the con­sol­i­da­tion po­ten­tial be­tween our port­fo­lio and the Al It­ti­had port­fo­lio to the max­i­mum,” he said, adding that the ac­qui­si­tion would prob­a­bly trans­late into a sus­tained or ac­cel­er­ated growth rate for the re­sult­ing en­tity. “At this stage, it is hard to quan­tify [the growth go­ing for­ward], but it is go­ing to ac­cel­er­ate. Dou­bledigit growth is achiev­able, and I would say more than 10 per­cent [growth per an­num] is plau­si­ble,” he opined.


How­ever, the con­trast be­tween the up­beat ex­pec­ta­tions for NASCO’s newly con­sol­i­dated UAE op­er­a­tion and the out­look for Al It­ti­had in the Le­banese mar­ket could hardly be more pro­nounced. “For us, it does not make sense to have two in­sur­ance com­pa­nies that are com­pet­ing in the same mar­ket with re­dun­dant costs in both com­pa­nies. We have al­ready stopped pro­duc­tion at Al It­ti­had Le­banon and un­for­tu­nately we have had to dis­miss most of the work­force,” Abi Aad ad­mit­ted.

In re­cent years, the port­fo­lio of Al It­ti­had in Le­banon has weak­ened con­sid­er­ably – also be­cause of in­qui­etude in the mar­ket over the po­ten­tial sale of the com­pany – shrink­ing to less than $6 mil­lion; a level, which Abi Aad said, did not jus­tify keep­ing the op­er­a­tion run­ning. How­ever, he noted that of the re­main­ing work­force of Al It­ti­had – the com­pany had al­ready gone through two rounds of sev­er­ances from em­ploy­ees he said – “some em­ploy­ees will be in­vited to fill po­si­tions within NASCO. ”

As to the fate of the port­fo­lio, he did not see it be­ing au­to­mat­i­cally merged into the port­fo­lio of Bankers In­sur­ance. “It would be un­fair and un­jus­ti­fied to give pro­duc­ers of Al It­ti­had port­fo­lios pref­er­en­tial treat­ment, and [take them] di­rectly into Bankers. Of course, we are open to ne­go­ti­a­tions if any pro­ducer of Al It­ti­had wants to roll over their port­fo­lio to Bankers, but [this pro­ducer or bro­ker] will have to abide by stan­dards that Bankers has in place.”

Here the story ap­pears to re­turn to the UAE. “Bankers is the lead­ing un­der­writer for NASCO In­sur­ance Group and has de­vel­oped a set of best prac­tices over the years since 1972, which trans­lated into Bankers be­ing con­sis­tently ranked among the top three com­pa­nies of [non-life in­sur­ance] in the Le­banese mar­ket. All these best prac­tices are go­ing to ben­e­fit Al It­ti­had UAE, such as en­ter­prise man­age­ment and en­ter­prise risk man­age­ment frame­works, in­ter­nal au­dit [skills] etc.,” Abi Aad said.

De­spite the con­sol­i­da­tion, a whole­sale merger is not im­mi­nent. “For the com­ing two years, NASCO is plan­ning to keep Bankers and Al It­ti­had sep­a­rate. Dur­ing these two years, there is a long check­list that needs to be ex­e­cuted be­fore the group can take any de­ci­sion on how to even­tu­ally merge the two en­ti­ties. Right now, a merger is not on the ta­ble, but in the fu­ture, any­thing can hap­pen.”

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