Bank of Nova Scotia’s decision to exit the life insurance market in Jamaica, Trinidad and Tobago paved the way Tuesday for one of the Caribbean’s oldest and largest insurers, Sagicor Financial Corp., to make its debut on Canadian markets.
Barbados-based Sagicor is paying US$203-million for Scotiabank’s insurance operations in two of the Caribbean’s most populous countries, along with a 20-year agreement to sell its products to the bank’s clients in the two countries. The deal unites the Caribbean’s dominant insurer – Sagicor has 50-per-cent-plus market share in Jamaica and a number of other countries – with the region’s leading bank. In Caribbean markets, Scotiabank typically offers two types of coverage to clients, while Sagicor sells 15 different kinds of insurance.
Scotiabank also said Tuesday that it’s focusing its Caribbean operations on countries where it enjoys economies of scale, and is selling branch networks on nine islands to Trinidad-based Republic Financial Holdings Ltd.
To pay for the Scotiabank purchase and fund future growth, Sagicor will list its shares on the Toronto Stock Exchange through a reverse takeover. The insurance company is being acquired by a special purchase acquisition corporation (SPAC) called Alignvest Acquisition II Corp., which raised $515.5-million when it went public on the TSX in 2017. The SPAC’s cash-and-share bid is valued at US$760-million, and will see Sagicor executives swap their holdings in the insurer for Alignvest stock.
The deal would give Sagicor, a company founded in 1840, a modern corporate structure. As with many Canadian life insurance companies, Sagicor was originally owned by its policy holders, who in 2001 received shares in exchange for their ownership stakes in a process called demutualization. Unlike domestic insurers, Sagicor did not follow through on this process by building its investor base. Shares in the insurer, which has US$6.8-billion in assets, are still held by approximately 38,000 clients and individual investors.
Sagicor has done seven significant acquisitions over the past 15 years, including the purchase of Royal Bank of Canada’s Jamaican operations in 2014, and plans to continue expanding. Joining forces with the SPAC is meant to give Sagicor additional access to capital at a time when the insurer’s executive team said in a news release it sees opportunities “to execute accretive follow-on acquisitions.”
Toronto-based Alignvest Management Corp. launched the SPAC in 2017 and has spent the past 15 months negotiating the Scotiabank acquisition and reverse takeover of Sagicor, with a team that included Alignvest managing partner Timothy Hodgson, former chief executive of Goldman Sachs Canada, and chairman Nadir Mohamed, former CEO of Rogers Communications Inc. If the transaction is approved by Alignvest shareholders at a vote that is expected to take place in January, Mr. Hodgson is expected to become the insurer’s chairman, while current Sagicor CEO Dodridge Miller and the management team will continue to run the company.
As part of Alignvest’s pitch for shareholder approval of the takeover, the SPAC pointed out that it is acquiring Sagicor for its book value, while most Canadian insurers change hands at a premium of 1.2 times their book value. The Sagicor acquisition is valued at 6.5 times next year’s projected earnings, below the average multiple of 8.8 times earnings on domestic insurance stocks. Sagicor posted a US$62-million profit in 2017, and the Scotiabank acquisition is expected to add US$30-million to the insurer’s annual income.
Since 2015, when securities regulations were changed to allow Canadian SPACs, the majority have performed poorly for investors. Approximately a dozen SPACs have raised $1.4-billion but many have either failed to make an acquisition and returned their capital to backers, or did a deal and are now trading for less than their initial public offering price. The first SPAC from Toronto-based Alignvest was sold for $10 a share in 2015, then acquired a telecom company called Trilogy International Partners Inc. in 2017. The shares closed at $1.52 on Tuesday.
RBC Dominion Securities was Alignvest’s financial adviser on the latest SPAC transaction, while Sagicor worked with JPMorgan Securities LLC.