Atlas Financial Holdings, Inc. (AFH) has inked a deal to acquire New York-based Global Liberty Insurance Company and its affiliated underwriting and premium finance companies for $25 million, subject to final adjustment. The transaction is expected to close in the first quarter of 2015.
Shares of Atlas Financial gained 7.1% and closed at $14.88 per share with the news coming in the middle of the trading session. Given the optimism regarding the deal, the share price is expected to rise further in the next few trading sessions.
Global Liberty provides services in the light commercial auto sector, primarily insuring limousine, black car and luxury car vehicles. The company, which is an admitted carrier in 14 states, underwrites around $40m of annual commercial auto direct written premiums and has $19.5 million of GAAP book value.
The takeover will help Atlas Financial to expand its commercial automobile insurance services in the New York market and will also add significant infrastructure on the East Coast.
The Transaction in Detail
The deal price will include Atlas Financial’s preferred shares worth $4 million, with an annual dividend of 4.5% payable both in cash or kind. After the fifth anniversary of issuance, these shares will be convertible to the company’s common stock at a strike price of $20 per common share. Based on actual loss development related to Global Liberty’s pre-acquisition reserves, the final sum of the preferred share will be adjusted.
After the third anniversary of issuance, both the acquirer and the acquiree will hold a mutual right to interchange the shares for cash at a face value, in addition to any accrued interest.
The remaining purchase price is expected to be paid in cash. During the three years following the transaction’s effective date, earn out to the limit of an additional $1 million will be paid based on the New York business’s underwriting profitability.
The estimated annual pre-tax income generated by the businesses to be acquired is approximately $4 million.
Atlas Financial expects to incur transaction related non-recurring expense of of 5–7 cents and 6–8 cents per share in the fourth quarter of 2014 and the first quarter of 2015, respectively.
Rationale
This deal is a strategic one for Atlas Financial, as Global Liberty’s current premium base, strong heritage in the public auto market and expert team will help the property and casualty insurer to increase its share in the country’s largest light commercial vehicle market.
Atlas Financial also plans to preserve Global Liberty’s local infrastructure on Long Island and have the site serve as Atlas Financial’s East Coast regional office.
In order to ensure an easy transition for existing customers and agents of Global Liberty, Atlas Financial will continue to operate Global Liberty’s public auto insurance business on completion of the deal.
Atlas Financial also plans to keep supplying products under the current brand name.
Zacks Rank
Currently, Atlas Financial holds a Zacks Rank #2 (Buy).
Other Stock Picks
Investors interested in the same industry could consider stocks like Alleghany Corporation (Y), Endurance Specialty Holdings Ltd. (ENH) and RLI Corp. (RLI). All these sport a Zacks Rank #1 (Strong Buy).
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