Bain Capital takes final step in UK insurance deal

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(Bloomberg) – Bain Capital made a final pitch to members of British insurer LV = in support of its takeover bid, after a lengthy sale process that drew a dozen bids as well as political heat on the preservation of mutual societies.

The deal will bring investments in LV = ‘s growth, including an upgrade in technology infrastructure, executives from Bain and LV =, formerly Liverpool Victoria, told members of the mutual on Monday. “We are committed to ensuring the long-term growth and success of LV =,” said Matt Popoli, Managing Director of Bain, during the online meeting. “Our goals are to increase the number of insureds from the current level of around 1.2 million to over 2 million,” he said.

At least 75% of members who vote on Dec. 10 must approve the deal for it to pass. The company has struggled to attract new members willing to participate in the risks of running the business, known as for-profit members, whose numbers have fallen by more than 40% since 2017, according to executives.

LV = ‘s board of directors has given its backing to the private equity giant’s program, which will hand over £ 616 million ($ 822 million) to members, including proceeds from a previous sale of the division of general insurance. LV =’s capital position, business operations and brand will be guaranteed under the deal, which was the best of 12 offers made for the company, LV = said in a statement on November 22.

LV = ‘s board of directors recognizes that it could have better managed its search for new owners. “I regret that at the very beginning of this process we were not clearer as a board of directors what significant change was needed to ensure a sustainable future,” CEO Mark Hartigan told Bloomberg this week. last. “We have to do what is in the best interests of investors and we cannot continue with capital below the scale,” he said. “We had to go out and get capital from third parties. “

Mutual death

The sale has led to new questions about the purpose of mutuals, a member-owned business model that has weakened in the UK as financial firms turn to public markets and private equity for new capital. LV =, which has been owned by its clients since 1843, said European Solvency II rules as well as the Brexit vote in 2016 “significantly worsened” its capital situation and made its financing needs even more pressing.

Mutuals have fallen to around 10% of the insurance industry, up from more than 50% in 1996, said Martin Shaw, director of the Association of Financial Mutuals, in an interview. In the United States, about 40% of insurance assets are held by mutuals.

“The fact that it’s so easy to demutualize an insurance company is one of the reasons there’s a lot of heat now and a strong desire to protect what’s left,” said Shaw, who appeared before. a parliamentary committee last week on mutuals and LV. = business.

Gareth Thomas, a British lawmaker who heads the All-Party Parliamentary Group for Mutuals, told parliament in September that the LV = deal would be the first major demutualization since the 2008 financial crisis. Thomas, who opposes the sale, said at the time “that it was very difficult for an individual LV = member to be able to assess whether the proposed demutualization was in their best interests, given the paucity of information provided to them”.

Bain is not the only bidder to bypass LV =. Private equity group Cinven and insurer Phoenix Group Holdings Plc were among the firms to bid, Bloomberg reported in 2020. LV = ‘s other most active contender has been Royal London, a rival insurer whose The offer was defended by opponents of private equity as white. knight who would preserve his mutual status.

Royal London – and some supporters of the mutual cause – are still keen to come up with a competing offer. The Daily Mail newspaper, which has campaigned against private equity firms buying up UK businesses, printed a cut and mailed letter to readers opposed to Bain’s deal to send to LV Chairman = Alan Cook.

For now, the British government will not oppose Bain. John Glen, Economic Secretary to the Treasury, told parliament in September that it was up to regulators and the courts to approve any sale of LV =.

© 2021 Bloomberg LP

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