Definity Financial Corporation
Announces acquisition of McFarlan Rowlands Insurance Brokers for $232MM
TSX: DFY | CAD 35.17 | Outperform | Price Target CAD 49.00
Sentiment: Positive
Summary: Definity announced that McDougall Insurance Brokers Ltd. ("McDougall"), its insurance brokerage subsidiary, has acquired 100% of McFarlan Rowlands Insurance Brokers Inc. for total consideration of $232MM, subject to post-closing adjustments. The $232MM consists of cash, funded through excess capital and debt, and shares in McDougall. Definity's ownership in McDougall remains at ~75% following the transaction.
Following the acquisition, DFY expects to generate in excess of $60MM/year in operating income before taxes and minority interests from McDougall and its other broker investments (vs. ~$40MM before the transaction). Furthermore, DFY expects the transaction to be immediately accretive to operating ROE and operating EPS.
McFarlan Rowlands is an Ontario-based insurance brokerage with 200+ employees in 18 offices generating ~$200MM in annual premiums. Following the combination of McFarlan Rowlands and McDougall, the combined company will have $700MM+ in annual premiums with 670 employees across 56 office locations.
Our take: The acquisition is consistent with DFY's strategy to grow its distribution/insurance brokerage business in part via acquisition. We view the acquisition positively, reflecting both deploying excess capital, diversifying earnings and providing greater opportunity to grow gross written premiums through greater penetration of its distribution businesses.