Property/casualty speciality insurer Randall & Quilter Investment Holdings Ltd. announced its planned acquisition by Brickell PC Insurance Holdings LLC has been terminated by shareholder Brickell.
R&Q announced in April it agreed to be purchased by Brickell for £482 million ($604.3 million) in cash, as well as $100 million of new equity funding. At the time, R&Q indicated that a capital boost was needed as a result of new accounting standards due to become effective in 2023.
On May 25, R&Q provided a market update that it had received a letter from Brickell in the evening of May 23 (UK time), alleging it was “in breach of certain obligations under the implementation agreement [related to] the proposed transaction.”
Brickell also claimed that it was a “material breach by R&Q,” so Brickell had exercised its right to terminate the implementation agreement in relation to the acquisition and the new equity funding, with immediate effect, R&Q continued.
The details of the alleged breach were not released, and Brickell hasn’t yet commented on its decision. (Brickell did not respond to emailed requests for comment).
R&Q said it does not agree it is in breach of the implementation agreement and therefore does not agree that Brickell has a right to terminate it, an assertion that R&Q detailed in a letter to Brickell. “Accordingly, in R&Q’s view the implementation agreement, together with Brickell’s obligations in relation to the acquisition and new equity funding remain in full force and effect.”
A subsidiary of Miami-based global investment firm 777 Partners LLC, Brickell owns approximately 23.2% of R&Q. R&Q operates two core businesses: program management and legacy insurance.
R&Q explained to shareholders that there was no certainty it would be able to enforce the terms of the implementation agreement via the courts in a timely fashion. In addition, Brickell’s maximum liability to R&Q under the implementation agreement in terms of damages may be just US$12.5 million, it said.
As a result, at a special general meeting held on May 25, shareholders were presented with the option to discontinue the acquistion, which they voted to do.
R&Q said it is now focused on raising approximately $100 million via a placing of shares to institutional shareholders and up to $8 million via an open offer to existing qualifying shareholders, which R&Q said is receiving “strong interest” from shareholders.
R&Q said shareholders will be updated in due course about the fundraise, which is expected to complete on July 12.
On May 27, AM Best issued a credit ratings update that it had revised the under-review status for R&Q and its subsidiaries from developing to negative. The ratings agency explained that the acquisition agreement’s original $100 million equity funding by Brickell would have mitigated the impact of an expected IFRS (International Financial Reporting Standards) loss for 2021 of between US$135 million and US$145 million on R&Q’s capital base.
“The revision of the implications of the under review status to negative from developing reflects the risk that the equity raise will not complete and that R&Q’s risk-adjusted capitalization will not return to historical levels,” said AM Best, explaining that R&Q’s ratings will remain under review until AM Best has certainty around R&Q’s capital position.
The credit ratings “reflect R&Q’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management,” the ratings announcement continued.
“We continue to have great confidence in the future prospects for R&Q and expect in excess of $90 million in pre-tax operating profit in 2024. We look forward to engaging with our shareholders on the fundraise,” according to William Spiegel, executive chairman of R&Q, in a statement.
“Following further engagement with our shareholders, our priority now is to secure the funding needed to de-lever our balance sheet and improve our financial profile,” said Alastair Campbell, non-executive director and senior independent director of R&Q.
“Since becoming executive chairman just over 12 months ago, William, alongside his new management team, have outlined a compelling new strategy and driven significant positive change at R&Q, enhancing its culture, risk management and governance. We look forward to engaging with our shareholders as we proceed with the fundraise.”
At 12:15 BST on May 26, shares in Randall & Quilter Investment Holdings were down to 85 pence from a day’s high of 132 pence on May 25, plunging approximately 35% over the last five days.
Topics Mergers & Acquisitions
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