Building capacity in a time of opportunity
If there is one thing that the current tough economic environment has taught the financial services industry, it is that consolidation is an effective way to overcome the crisis as there is significant value in numbers; especially when two big companies join forces.
In a Stock Exchange News Service announcement on 25 January, listed financial services group Sanlam announced that – subject to regulatory approval – it is set to acquire a 53% stake in needs-matched life insurance provider BrightRock.
A good call at a perfect time?
The merger comes in a year that looks as if it will be an important one for the financial services industry as Twin Peaks looks set to be implemented.
All eyes will be on the industry as the Twin Peaks model of financial sector regulation will see the creation of a prudential regulator – the Prudential Authority – housed in the South African Reserve Bank (SARB), while the FSB will be transformed into a dedicated market conduct regulator – the Financial Sector Conduct Authority. The FSB will have its eye on companies making sure that due diligence is followed. It is always better to rather be on the right side of regulation than the wrong side.
According to Sanlam Personal Finance Deputy CEO, Hennie de Villiers, all due diligence processes have been finalised and completion of the transaction is dependent on when final regulatory approvals are granted.
The transaction price depends on the date of completion, but is expected not to exceed R707 million. This is assuming that the transaction is approved and completed in the first half of this year.
Growth in tough times
De Villiers said the acquisition is in line with Sanlam’s strategy to seek profitable and sustainable growth opportunities.
According to the release, De Villiers said that under the agreement, Sanlam and BrightRock will continue to function as independent businesses, retaining their own brands, life insurance licences and management teams.
“We believe BrightRock has established a strong and credible presence in the South African market and presents a valuable proposition to people’s insurance needs. In particular, the company’s innovative needs-matched life insurance offering supports Sanlam’s client-focused philosophy and our strong belief in the value of financial advice by qualified and accredited intermediaries,” said De Villiers.
Maintaining momentum
Sharing his thoughts through the same release, BrightRock CEO, Schalk Malan said that BrightRock is proud to welcome Sanlam as our new majority shareholder. “Our business has grown strongly since coming to market five years ago with R148 billion cover in force and over an annual premium income of R611million.
Shared Values
Malan added that in Sanlam, BrightRock has found a growth partner with good credentials that is supportive of BrightRocks aspirations to create a highly differentiated and autonomous financial services business of scale.
“Further, we are also pleased that Lombard Insurance, our founding investors that backed BrightRock from inception, will remain shareholders going forward,” said Malan.
While BrightRock products are currently sold solely through independent brokers, the product range will in future also be available through Sanlam Financial Advisers. Sanlam Broker Distribution will also take the product to market alongside its Matrix offering.
Possible growth points
Over the years, it has been no secret that Sanlam has been looking for avenues of growth, particularly in the lower income earning market. Perhaps this is the transaction that was needed to facilitate this.
In a world where technology is defining our lives, selling life insurance to Millennials becomes a different beast than it was before. Issues such as blanket cover and standardised offerings does not cut it with this group who fight every day for individualisation, be it in cover or price.
BrightRock beings significant value to Sanlam’s table as it is experienced in dealing with tailor made offerings. This can be further transformed by possibly designing and marketing products to a different income group.
There are fears and concerns regarding how this will be distributed to this said group and how profitable it will be. But as Former President Nelson Mandela said: it always seems impossible and it is done. We cannot grow as a country until we find a solution to financial inclusion.
Editor’s Thoughts:
This is a merger of great promise; it promises a lot in terms of offering a new range of products to Sanlam clients and it offers a lot of promise to BrightRock in the form of being associated with a brand such as Sanlam. Let’s hope it will offer a lot of promise to the public as a whole. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
