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Sagicor could pay up to $6b for Alliance amid profit climb

Sagicor Group Jamaica Limited, SGJL, could pay up to $6 billion for remittance and cambio business Alliance Financial Service Limited, AFSL, which it acquired in April this year, having signalled in February its intention to do so.

The acquisition cost was disclosed in the financial conglomerate’s second-quarter financials, which showed continuing strong profit growth by the financial conglomerate.

The purchase of 100 per cent of the former Robert and Peter Chin-controlled AFSL business saw Sagicor upfronting $2.6 billion in cash, with an agreement to pay up to $3.4 billion more in contingent cash consideration based on specified performance criteria, notes to the Sagicor Group unaudited six-month financial statement to June 2022 said.

Contingent consideration in a purchase agreement is meant to help buyers and sellers reach a compromise acquisition price, balance out risk, and protect both the seller and the buyer by striking a middle ground between what an acquiring company – usually more cautious about a firm’s outlook – is willing to pay for the business, and what a seller – more optimistic about growth and performance possibilities – believes the business is worth.

Based on published information on AFSL, available from the prospectus for its aborted initial public offering of shares in December 2020, the company at the time had assets of $4.2 billion, liabilities of $2.8 billion, and shareholders’ equity of $1.6 billion. Sagicor reported that at June, it measured total goodwill and purchased intangibles on the acquisition at $3.49 billion. At the time of the purchase, AFSL, which is headquartered at Belmont Road in Kingston, had four branches located in Liguanea in St Andrew, Portmore in St Catherine, May Pen in Clarendon, and Mandeville in Manchester.

The 2020 intended IPO had valued AFSL at approximately $9.8 billion when it sought to raise $2 billion on the equities market, through the offer of 1.2 billion of the company’s 6.2 billion issued ordinary shares at a price of $1.59 per share. The company had another 1.7 billion in authorised unissued shares. Before the pandemic, AFSL was said to have been growing at close to 55 per cent year-over-year, having recorded net profits of $709 million in 2019.

In April, Sagicor-appointed AFSL CEO Omar Brown said the business had been acquired mainly for its cambio and remittance income streams that are now added to SGJ’s already-profitable portfolio of life insurance, general insurance, banking, investment and property businesses. Sagicor also has investments in energy generation, and in tourism through its related company Sagicor X Fund. The Sagicor expansion plan, via the AFSL acquisition, includes operating banking, insurance and investment windows at locations of the MoneyGram-branded remittance business and cambio service which AFSL offers through subagents, the number of which it grew from 66 in 2020 to 110 at April this year.

Earlier this month Sagicor reported that it completed a deal, announced in April, to also acquire the securities loan book of another Alliance entity, Alliance Investment Management Limited, AIML. The price paid for the AIML client portfolio was not disclosed.

In its results, SGJ reported a 25 per cent boost in six months net profit to $6 billion from $4.85 billion at the same interval last year, although revenues were relatively flat, inching down three per cent from approximately $48 billion to just under $47 billion over the period. The group’s total assets nudged up a percentage point to roughly $514 billion, while assets under management increased three per cent to $969.3 billion, and shareholders’ equity dipped two per cent to $104.5 billion for the half-year.

The star performer in the business was the individual life segment, which doubled its prior-year profit to end the half-year at $3.5 billion. New business sales and in-force policy growth in Jamaica and Cayman Islands resulted in a more than $919-million growth in net premium income over the first six months of 2021, Sagicor reported.

The employee benefits segment also produced strong profits of $1.67 billion, a 23 per cent increase year on year. Net group health premium income was also up four per cent, to $5.4 billion, largely as a result of new business, Sagicor Group said.

Sagicor paid out more money on policies in the six months this year over the similar period last year as net insurance benefits incurred reportedly rose by $1.3 billion, a jump which the financial group attributed to rising medical inflation.

The commercial banking arm, Sagicor Bank, which the Bank of Jamaica reported this week as accounting for $185.2 billion of the banking sector’s $1.86 trillion in assets, and capitalised at $23.6 billion, recorded a net profit of $1.2 billion, some 22 per cent above its earnings for the first six months of 2021.

“The segment was aided by a 19 per cent increase in total revenues, primarily due to increases in consumer spending activities through credit card and point-of-sale transactions. This translated to 39 per cent, or $1.03 billion, higher fee and other income,” SGJL reported.

Loans at Sagicor Bank are said to have grown by $6.5 billion against the prior year.

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