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Centerbridge set to seal Sompo Canopius deal

New York-headquartered private equity house Centerbridge is in advanced talks to acquire Sompo Canopius as part of a management buyout (MBO) of the Lloyd's (re)insurer, The Insurance Insider can reveal.

It is understood that the all-cash deal will value Sompo Canopius at upwards of $900mn, dwarfing Axis' takeout of listed player Novae.

Broking sources said they expected the deal to be finalised over the next fortnight, with Sompo Canopius' management keen to provide certainty around the group's future ownership ahead of next month's Monte Carlo Rendez-Vous.

The MBO will see the management team, led by executive chairman Michael Watson, commit their future to the business.

If the deal goes ahead, it would represent the first time that Japanese big three player Sompo has sold an asset. It is relatively rare in Japanese corporate culture to make disposals.

Sompo Canopius' book value is not public record, but sources suggested that it is in the region of $750mn, implying a sale multiple of upwards of 1.2x book value.

The deal values the business in line with Argo's acquisition of Ariel in November last year, but at a discount to the Axis-Novae takeout.

However, there is no good comparison point given that this is the first private equity buyer of a Lime Street platform since Apollo and CVC bought Brit in 2010.

It is understood that Centerbridge and Sompo Canopius have been in exclusive talks for several months.

A number of other major private equity houses looked at the business including Blackstone, TPG, KKR and Aquiline, according to sources.

As reported in February, Sompo gave Watson and the Sompo Canopius management team permission to speak to financial sponsors with a view to arranging an MBO for the $1bn+ premium carrier.

But the door was always closed to strategic bidders, with Sompo preferring to hold onto the business than to sell it to a rival.

In October last year Sompo struck a deal to acquire Bermudian (re)insurer Endurance for $6.3bn, with the transaction closing in March and the business rebranded as Sompo International.

That deal gave Sompo a global specialty business that dwarfs its existing Lloyd's-focussed specialty play Sompo Canopius.

On the announcement of the deal Sompo said it intended to merge Endurance and Sompo Canopius under the leadership of Endurance chairman and CEO John Charman.

However, it quickly recognised that there was scope for value destruction in merging the two businesses, and agreed to give management room to look for a deal that would prevent that eventuality.

Sompo announced in March when the Endurance deal closed that Sompo Canopius would continue to be run as an independent business, giving the firm's executive team additional time to find a solution.

Centerbridge, which has around $29bn of assets under management, was founded in 2005 by Jeffrey Aronson and Mark Gallogly.

Aronson had previously been head of distressed securities at Angelo, Gordon & Co, while Gallogly had been head of private equity investments at Blackstone.

Centerbridge has shown appetite in recent months to enter the insurance space, an area it has not previously played in.

It was the last private equity house involved in the sale process for specialist motor insurer Sabre, but talks are believed to have stalled last month, with Centerbridge unwilling to match the £600mn ($777.3mn) valuation placed on the business by owners BC Partners.

Centerbridge had been paired up with Qatar Insurance Company on the Sabre deal.

Macquarie and GC Securities are advising on the Sompo Canopius MBO.

Sompo, Centerbridge and Sompo Canopius declined to comment.

 

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