Minova exploring BMS sale options

Minova Insurance has launched a strategic process that could lead to the sale or part-sale of broking arm BMS, The Insurance Insider can reveal.

It could mean Minova backer Capital Z Partners exiting its stake, with staff also taking money off the table.

Sources said BMS is unlikely to be sold to a trade player, with management keen to retain a significant holding in the business going forward.

It is not clear how the process will deal with Pioneer, Minova’s sizeable MGA arm, but it seems possible that the strategic exercise could leave BMS entirely separated from its sister company.

Sources suggested that Minova’s house bank Canaccord Genuity is advising the company on its options.

Given its scale, rapid growth and high margins, BMS is likely to attract significant interest from private equity houses, although it could also look to attract other financial bidders such as pension funds or family trusts.

Dane Douetil, group CEO of Minova, said to this publication: “As we told all of our colleagues in November last year, although we have no need to refinance until 2022, in light of the group’s strong performance and potentially favourable financial market conditions, we are exploring our options to refinance the remaining Capital Z preference shares and our Pricoa debt facilities.

“Any refinancing would be subject to achieving the triple goals of reducing our cost of capital, funding the future growth of the business and of cementing the group’s long-term independence.”

BMS, which is led by CEO Nick Cook, has reported strong financial performance in recent years. A preliminary update from the company showed that revenue grew by 25 percent to exceed £100mn in 2018.

In its most recent report and accounts, the company noted that it had posted Ebitda of £17.2mn, 30 percent year on year. The Ebitda margin in 2017 was 21.2 percent.

BMS was the ninth-largest Lloyd’s broker by premium in that period and recorded 15 percent organic growth.

Cap Z bought into Minova during 2014 for $50.7mn and has one non-executive director on the firm’s board.

Details of Cap Z’s ownership stake are not available. However, when Minova bought back half of the PE firm’s preference shares in 2016, sources said that when it converted its warrants it would have between 9 and 23 percent of the common shares.

As BMS has passed through a period of rapid growth, Pioneer has hit problems following a strong start after its foundation in 2011.

Pioneer was hit hard by the 2017 hurricanes and adverse reserve development and generated negative profit commissions of £3mn – a swing against the company of more than £10mn from the 2016 result.

Since then, remedial work has taken place on the portfolio, with a number of classes exited. In addition, founding CEO Darren Doherty left the company and was ultimately replaced by respected former XL Catlin UK and Ireland insurance CEO Andrew McMellin in September 2018.

BMS has significant scarcity value, having no independent peers of the same scale, following the $90mn-$100mn sale of Ed to BGC early this year and the earlier sales of Miller to Willis Towers Watson and RKH to Hyperion.

Interest from private equity in insurance fee businesses in London has been intense, pushing valuations up to 12x and above.

PE houses to have shown interest in the space over the last 18 months include Warburg Pincus, Equistone and TA Associates.

Examples of pension funds investing in the intermediary sector include Canadian pension investment manager Caisse de dépôt et placement du Québec’s $400mn investment in Hyperion and fellow Canadian PSP’s stake in AmWins.

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