In an effort to strengthen its foothold in domestic surety insurance market, AmTrust Financial Services, Inc. (AFSI) inked a deal to buy the Insco Dico Group (Insco Dico) for about $85 million. The market reacted positively to the news of the impending acquisition, which came after a hiatus of four months. As a result, the share price went up by 2.1% to close at $39.80 yesterday.
AmTrust Financial intends to deploy working capital to finance the purchase consideration. The purchase consideration of $85 million is $7.0 million above its tangible book value. The acquisition is expected to culminate within the next six months, subject to closing conditions.
Insco Dico's subsidiaries – Developers Surety and Indemnity Company and Indemnity Company of California offers surety insurance to developers and contractors across the U.S. Another subsidiary, Builders Insurance Services, markets general liability insurance policies to contractors in many of the western states.
The addition of Insco Dico widens AmTrust Financial’s insurance products suite, also adding to its distribution capabilities. Furthermore, the company expects improvements in the economy and the housing market to generate greater demand for Insco Dico's surety insurance products. This, in turn will benefit AmTrust Financial’s product portfolio and subsequently, ensure a steady revenue stream.
Earlier on Jul 29, 2013, AmTrust Financial announced that one of its subsidiaries agreed to purchase Sagicor Europe Limited from Sagicor Financial Corporation and its wholly-owned subsidiaries (SEL), for about $86.1 million (£56 million).
AmTrust Financial has been keenly adopting the inorganic route to fortify its product portfolio. By far in 2013, the property and casualty insurer has completed four acquisitions. In May, it acquired Mutual Insurers Holding Company and its subsidiaries, while its subsidiary AMT Warranty Corp. acquired CPPNA Holdings, Inc. for about $0.04 million.
Earlier in April, it had acquired Sequoia Insurance Company and its subsidiaries for $0.06 million. In February, IGI Group Limited, the subsidiary of AmTrust Financial, had acquired Car Care Plan (Holdings) Limited.
Several other property and casualty insurers are also adopting the inorganic route to ramp up their growth. In June, The Travelers Companies, Inc. (TRV) has proposed the acquisition of The Dominion of Canada General Insurance Company for a cash consideration of $1.1 billion. This acquisition was directed to strengthen the former’s foothold in Canada.
In an effort to strengthen mortgage services business, Fidelity National Financial Inc. (FNF) also inked a deal in May to acquire Lender Processing Services Inc. (LPS) for $2.9 billion.
There was no earnings momentum in the last 30 days. With optimism over the current acquisition, we expect analysts to pull their estimates upward, thereby exerting upward pressure on the Zacks Rank. AmTrust Financial carries a Zacks Rank #3 (Hold).
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