Markel has struck a $919mn deal to acquire specialist fronting and programme carrier State National.
At $21.00 a share, the consideration represents a 7 percent premium to the State National’s closing share price of $19.67 as of 25 July and a 38 percent premium to the 30-day volume-weighted average price prior to 18 May, the last trading day prior to published takeover speculation.
Upon completion of the deal, State National will operate as a separate business unit, with the current management team led by chairman and CEO Terry Ledbetter remaining in place.
The transaction has been unanimously approved by both companies’ board of directors, which remains subject to State National shareholder clearance.
However, holders of around 37 percent of shares outstanding have already committed to vote in favour of transaction. Markel said it had struck separate deals with the family of founder Ledbetter and CF SNC Investors LP.
Markel said that transaction “brings together two values-driven organizations with a shared commitment to innovation, service, and long-term relationships.”
The firm added that State National’s two core businesses, program services and lender services, “are well positioned to capitalize on changing market dynamics and new opportunities”.
State National’s program services division, which provides fee-based fronting services to general agents, insurance carriers and other capacity providers, generated $57.6mn of pre-tax income in 2016, accounting for around 70 percent of the company's pre-tax earnings.
State National has an exclusive arrangement with Nephila, which allows the Bermudian fund manager to use State National's AM Best A rated paper to write insurance business in the US.
Meanwhile, the company’s lender services division provides protection to auto lenders when borrowers fail to maintain adequate automobile insurance.
Commenting on the announcement, Markel co-CEO Richard Whitt said: "Strategically, State National will help us to leverage our InsurTech and digital distribution initiatives, diversify our underwriting and fee based portfolios and revenue streams, and add to Markel's third party capital capabilities."
Meanwhile, Ledbetter said: “Markel understands the uniqueness of our business model, and will be a tremendous asset as we, together, build upon our leadership position and specialty insurance service offerings, and continue to implement our strategic plan to deliver enhanced value for our clients.
This transaction is all about growth, not cost-cutting, and we believe that State National employees will benefit from being part of a larger, stronger, growth-oriented company with a more diversified platform.”
State National has been subject to takeover speculation for some months. In May, The Insurance Insider revealed the firm had appointed Evercore to run a formal sales process.
Markel’s purchase of State National is its largest deal since the company’s $3.3bn acquisition of Alterra in 2012.
The transaction is expected to close in the fourth quarter of 2017, subject to shareholder and regulatory approval.