Westaim HIIG to acquire 42.5% of insurance firm
March 12, '14 - NR
Westaim HIIG LP, an Ontario limited partnership established by the Westaim Corp. for this purpose, has agreed to acquire a significant interest in Houston International Insurance Group Ltd. (HIIG), an international specialty insurance company headquartered in Houston with offices in Atlanta, Birmingham, Chicago and New York. HIIG is led by its chairman and chief executive officer, Stephen L. Way, an accomplished insurance industry executive who previously founded and led HCC Insurance Holdings Inc. to become a multibillion-dollar global specialty insurer achieving significant shareholder returns. HIIG is a U.S.-based diversified specialty insurance provider and managing general insurance agent covering risks across the United States and certain niche global markets. HIIG's business includes mining; onshore oil and gas; cranes, rigging and heavy transport; professional lines including miscellaneous E&O, lawyers and community banks; hospitality; specialty lines through several MGU Partners; and large transactional property accounts worldwide. For the year ended Dec. 31, 2013, HIIG had aggregate gross written premiums of approximately $380-million (all figures herein are in United States dollars unless otherwise specified and all financial information in respect of HIIG as at and for the year ended Dec. 31, 2013, is unaudited).
The partnership will acquire an approximate 42.5-per-cent equity ownership interest in HIIG for $75-million at an overall valuation of approximately 89 per cent of HIIG's Dec. 31, 2013, adjusted stockholders' equity(1). In addition, the partnership will have the exclusive right and obligation (subject to financing as described below) to acquire an additional equity ownership interest of approximately 24.6 per cent at a valuation of approximately 84 per cent of HIIG's Dec. 31, 2013, adjusted stockholders' equity which would result in an overall valuation for the acquisition of approximately 87 per cent of HIIG's Dec. 31, 2013, adjusted stockholders' equity.
The acquisition is consistent with Westaim's operating objective of making strategic and/or opportunistic investments primarily in the financial services industry. Westaim's first such investment, made in March, 2010, was the purchase of a 100-per-cent interest in JEVCO Insurance Company for approximately $261-million (Canadian). Westaim then set out to execute its long-term strategic plan to grow JEVCO organically and through acquisitions. In September, 2012, after two and one-half years of ownership, Westaim, in response to an unsolicited offer, sold JEVCO to Intact Financial Corp. for $530-million (Canadian).
"The specialty insurance market offers compelling global opportunities. We believe that partnering with Stephen Way, who has delivered significant shareholder returns throughout several market cycles, provides Westaim with an excellent opportunity to deploy capital. This investment is consistent with our stated objective of growing book value per share at above average rates over the long term," stated Cameron MacDonald, Westaim's president and chief executive officer.
"Westaim is an experienced insurance industry investor that will be an excellent partner for HIIG to create significant shareholder value," stated Stephen L. Way, chairman and chief executive officer of Houston International Insurance Group Ltd. "With our new partners and access to capital we are well positioned to take our company to the next level."
(1) Adjusted stockholders' equity is defined as HIIG's stockholders' equity as at Dec. 31, 2013, adjusted for (i) the treasury purchase as part of the initial acquisition, (ii) an agreed-upon adjustment to the deferred tax asset, and (iii) other minor adjustments, all as defined in the initial secondary purchase agreement and second acquisition purchase agreement, as applicable.
Key terms of the acquisition
The key terms of the acquisition and certain related transactions are summarized below.
Initial acquisition
- The partnership was formed under the laws of Ontario. In addition to being the sole limited partner of the partnership at the present time, Westaim, through a wholly owned subsidiary, is the general partner entitled to direct the business and affairs of the partnership.
- The partnership has agreed to acquire an approximate 42.5-per-cent interest in HIIG for aggregate consideration of $75-million (the initial acquisition) and, following the initial acquisition, will have the exclusive right and obligation to increase its ownership in HIIG to approximately 67.1 per cent (the second acquisition) conditional on the partnership raising the funds necessary to complete such purchase on terms reasonably satisfactory to the partnership.
- The initial acquisition will be a two-part transaction involving the concurrent (i) acquisition (the initial secondary purchase) by the partnership for $15-million of approximately 14.1 per cent of the outstanding shares of common stock of HIIG held by certain shareholders of HIIG, including Lightyear Capital Fund II LP in accordance with the terms and conditions of a stock purchase agreement between the partnership and the sellers (the initial secondary purchase agreement), and (ii) subscription by the partnership for $60-million of HIIG shares from treasury.
- The initial acquisition valuation is expected to be approximately 89 per cent of the adjusted stockholders' equity of HIIG as at Dec. 31, 2013.
- To finance the initial acquisition, the partnership has signed equity commitment letters with Westaim and certain other investors for an aggregate of approximately $77-million. Pursuant to these equity commitment letters, the partnership will collectively be financed as to (i) $20-million by Westaim from its current funds, (ii) $20-million by each of Catlin Group Ltd. and Everest Re Group Ltd., (iii) $10-million by Stephen L. Way, chairman and chief executive officer of HIIG, and (iv) $7-million by certain other existing shareholders of HIIG and other investors.
- Upon completion of the initial acquisition, the partnership will be entitled to nominate six directors to HIIG's 10-person board of directors.
- Catlin and Everest are leading global specialty property and casualty insurers and reinsurers. The ordinary shares of Catlin are listed on the London Stock with an aggregate market capitalization of approximately 1.9 billion British pounds sterling. The common stock of Everest is listed on the New York Stock Exchange with an aggregate market capitalization of approximately $7.1-billion.
Second acquisition
- Under a stock purchase agreement (the second acquisition purchase agreement) to be entered into in connection with (and as a condition to) the completion of the initial acquisition, the partnership will also have the right and obligation (for six months after the completion of the initial acquisition) to purchase the remaining HIIG shares owned by the sellers for an aggregate purchase price of approximately $38.7-million.
- Completion of the second acquisition will be conditional on the partnership raising the funds necessary to complete such purchase on terms reasonably satisfactory to the partnership.
- Upon completion of the second acquisition, the HIIG board of directors will be reduced to eight members who shall be elected by a majority vote of all stockholders (with the partnership expected to own approximately 67.1 per cent of HIIG shares).
- The second acquisition valuation is expected to be approximately 84 per cent of the adjusted stockholders' equity of HIIG as at Dec. 31, 2013.
Over all, after giving effect to the initial acquisition and second acquisition, the partnership is expected to have purchased approximately 67.1 per cent of HIIG for approximately $116-million at an overall valuation of approximately 87 per cent of HIIG's Dec. 31, 2013, adjusted stockholders' equity.
In connection with the negotiation and entering of the definitive agreements in respect of the acquisition, Baker & McKenzie LLP and Sidley Austin LLP have acted as legal counsel to Westaim, Davis Polk & Wardwell LLP has acted as counsel to the sellers, and Locke Lord LLP has acted as counsel to HIIG. TD Securities Inc. and GMP Securities LP acted as financial advisers to Westaim in connection with the acquisition.
The acquisition is subject to the receipt of all requisite regulatory approvals, including TSX Venture Exchange approval, and any other regulatory approvals required under applicable U.S. competition and insurance laws, including approval of the Departments of Insurance of the States of Texas and Oklahoma. The initial acquisition is expected to close in second quarter 2014.
Further information about the acquisition will be available on SEDAR and the company's website. |
