Picture supply: Getty Pictures
Customary Life‘s (LSE:SDLF) share value didn’t change a lot on Wednesday (15 April), following an announcement that it’s reached an settlement to accumulate the UK insurance coverage and pension enterprise of Aegon.
Let’s take a more in-depth have a look at the implications of the deal. Particularly, what would possibly it do to the group’s share value?
Some vital particulars
The deal values Aegon’s operation at £2bn. It is going to be paid for by way of a mixture of debt (£650m), money (£750m), and the problem of latest shares (£600m).
At first look, the comparatively muted response of buyers — by mid-afternoon, the group’s shares have been up 1.5% — is a little bit stunning. In spite of everything, the agreed value is equal to twenty-eight.5% of Customary Life’s market cap.
Nevertheless, the enterprise being acquired is reported to have an annual adjusted working revenue of £190m, valuing the group at 10.5 instances this determine. In 2025, Customary Life’s adjusted earnings have been £945m, equal to a pre-announcement valuation of seven.5 instances revenue.
What does this imply?
These numbers might be interpreted in two methods.
Both Customary Life’s paying £575m an excessive amount of, or the group itself is undervalued by £2.8bn. Which is it? Judging by the response of buyers as we speak, no one actually is aware of.
It might be that the Metropolis’s digesting the implications for the group’s backside line of taking over new debt. And issuing extra shares – Aegon will change into a 15.3% shareholder — will dilute current house owners. As soon as the mud settles, the share value would possibly present an even bigger motion, both up or down.
Getting into the precise course
Nevertheless, on the face of it, I believe the deal might be excellent news.
For instance, it’s going to create the most important long-term retirement financial savings and revenue enterprise within the UK. It would add roughly £160bn to property underneath administration and one other 3.8m clients.
And it means 57% of working revenue of the enlarged group will come from capital-light fee-based enterprise.
As well as, it’s going to enhance the group’s Solvency II ratio by just a few share factors.
Additionally, it’s estimated that £400m of further free money will probably be generated within the first 5 years following the acquisition. Though constructive, that is unlikely to be a gamechanger for current shareholders like me.
Already, the group has a status for being top-of-the-line FTSE 100 dividend payers – the inventory’s at present yielding 7.7%. Returning one other £80m to shareholders annually would equate to 0.67p, primarily based on the extra 181.1m shares being issued. This might be a 1.2% enchancment on the group’s 2025 payout.
In fact, there can by no means be any ensures when it comes shareholder returns. Certainly, the group hasn’t confirmed whether or not all (or any) of the additional money will probably be paid in dividends.
However there are dangers. It’s not straightforward integrating newly acquired companies. And the transaction nonetheless wants regulatory approval.
My view
Personally, I welcome the “mid-single digit accretion” to adjusted working earnings per share.
However to be sincere, as a shareholder, I’m not overly-excited by the deal. For instance, I nonetheless have some issues over the acquisition value. Nevertheless, I believe it’s going to add worth over the long run. In flip, this could translate into a better share value and assist preserve dividend progress. And that’s all that basically issues relating to investing.
On this foundation, I’m going to maintain maintain of my shares.
