More suitors could join the battle to buy AUB after Swedish private equity firm EQT‘s multibillion-dollar bid for the listed intermediary group, according to industry analysts. 

As reported yesterday, EQT has made an unsolicited bid to acquire AUB via a scheme of arrangement. Its $45-per-share offer values Australia’s second-largest general insurance intermediary group at $5.25 billion. 

Hunter Green Institutional Broking director Charlie Green says the EQT offer is “too cheap …. A low-20s [price earnings multiple] is what EQT has pitched. In a relatively low interest rate environment, for such a good company, that’s a relatively derisory multiple. 

“I think they’re having a good crack at a good asset. They hope to get bullet-proof earnings on a reasonable multiple and it’s the holy grail for them, but they need to sharpen their pencils.” 

Mr Green, who does not have funds invested in AUB, told insuranceNEWS.com.au: “I expect it to be competitive now that they have opened the door. I expect the bid for AUB to be contested because it’s so cheap, and now that somebody started the auction, it’s game on.” 

He says insurance assets in Australia are attractive because they provide “resilient earnings on a reasonable multiple. It’s an orderly industry structure in both the broking and manufacturing in Australia, and that’s an attractive feature if you want to buy an asset, you want to buy an asset in an industry that is predictable.” 

AUB says the proposal is subject to conditions including exclusivity, completion of due diligence, a unanimous board recommendation, final internal approvals, and execution of a scheme implementation deed. 

Jarden equity analysts note the proposal’s “ ’no talk’ and ‘no due diligence’ restrictions have a fiduciary exemption that applies after the hard exclusivity period ends, allowing the AUB board flexibility to engage with competing bidders if it receives an unsolicited competing proposal that could be considered a superior proposal”.

The hard exclusivity period ends on November 6, the Jarden note says. 

EQT’s bid comes a year after PSC Insurance was acquired by Ardonagh Group. 

Morgan Stanley analysts say the $45-per-share offer is a “suitable starting point … We think AUB is a more strategic asset, given its [Australian] market position. We think investors underappreciate the market share gains brokers are delivering. Australian premiums written through brokers are growing as a percentage of the Australian general insurance industry.”