| Mon 11 Apr 2005, 12:40 | | Sanlam plays waiting game for African Life |
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Sanlam plays waiting game for African Life
Assurer’s purchase of pan-African, emerging- market specialist makes good sense, writes Richard Stovin-Bradford
10 April 2005
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TANTALISING TARGET: African Life chief executive Jeremy Rowse is unable to comment on market talk that Sanlam is stalking his company
A FLURRY of takeover activity in the lower echelons of the life assurance industry late last year once again placed consolidation on the agenda for some small assurers.
It all began when emerging segment life policy administrator Capital Alliance pounced on Pretoria-based Rentmeester, putting it out of its misery in a R12-million deal, only to find itself in the friendly embrace of Liberty Life in a R3.1-billion deal days later.
Capital Alliance, which specialises in buying life assurance books and administering them more efficiently than their previous owners did, is known as an industry consolidator, having bought 10 companies in the past 10 years.
But, after it was itself swept up by consolidation, it is no longer believed to be on the prowl — at least for the time being — for any more local deals.
The new prowlers that will pick up where Capital Alliance left off are larger life assurers that need to improve their access to emerging consumers — the market segment seen as the battleground where assurers will fight for their long-term sustainability.
African Life and Metropolitan Holdings, both emerging consumer segment specialists, are routinely tipped as the most likely targets.
But Metropolitan, the larger of the two, has just delivered record full-year results and made clear that it does not want to be seen as the solution to its larger peers’ market penetration needs. It prefers its independence.
However, African Life is trading under a cautionary. Its mass market specialisation and burgeoning continental network mean it is one answer to the new prowlers’ problems.
Beyond its Johannesburg base, African Life has operations in Botswana, Namibia, Kenya, Ghana, Zambia and Tanzania.
Capital-heavy Sanlam is still tipped as the most likely bidder for African Life. Sanlam chief executive Johan van Zyl said at his full-year results presentation in February that “structural growth opportunities” were Sanlam’s first choice to use surplus capital.
Also setting Sanlam apart as a potential bidder is Van Zyl’s conviction that there is room for further consolidation in the lower echelons of the sector.
That Sanlam is keen on the emerging segment is in little doubt. In his annual report, chairman Roy Andersen says: “The South African market provides significant opportunities for new growth, given the relatively low penetration of savings and investment products and the untapped potential of emerging market segments.”
The Cape-based assurer has not yet realised its potential in the Gauteng market, where smaller rival Metropolitan Holdings — an independent mass market life assurer created by Sanlam in 1992 — has made significant inroads.
One industry insider said last October that acquiring African Life “would be a very interesting strategic move, taking Sanlam into a segment it does not know”.
As a result of his firm’s cautionary, African Life chief executive Jeremy Rowse is unable to comment on potential corporate activity involving his firm. But African Life’s renewal of its cautionary is perhaps an indication of the potential bidder’s inability to move quickly. This would be consistent with Sanlam’s position as it waits for Barclays’ partial offer for Absa.
But the delay could also reflect the many regulatory hoops any life assurance deal would have to pass through.
A further cause of delay could be that African Life’s March year-end has just passed. Any self-respecting bidder would want fresh evidence of the recovery trend heralded in the assurer’s September interims.
Sanlam has the cash to do a deal almost immediately. African Life’s market value is about R2.6-billion, well within reach for Sanlam, which is valued at about R33.5-billion. But Sanlam probably wants to await the outcome of the Barclays offer before making final plans on how to deploy its capital. The assurer could receive up to R10-billion gross by selling part of its 21.4% stake in Absa to Barclays.
In February, the assurer indicated that it was likely to have surplus capital of R6-billion following the Barclays deal, though some analysts reckon the surplus could be well above R10-billion.
Making the purchase of African Life simpler are a few shareholders who could be interested in selling at the right price.
Momentum, the life assurer in the FirstRand stable, has an effective stake in African Life of about 34% and Morgan Stanley, Sanlam Investment Management and the International Finance Corp are other major shareholders.
Momentum managing director Hillie Meyer says his group is still prepared to sell at the right price, but adds: “We’re not unhappy with African Life’s performance and we’re not an overly keen seller.”
But he then adds: “African Life’s not necessarily a long-term investment.”
Most analysts believe empowerment entrepreneurs Mvelaphanda Holdings see their 10% stake as more of an investment banking transaction and less as an empowerment deal. Mvela would probably value the cash generated by any deal.
African Life may sound like the quintessential empowerment company in the long-term insurance sector, but “African” is almost a better description of its continental reach than of its current BEE credentials.
Incorporation into the Sanlam group, which already has empowerment partners in the shape of the Ubuntu-Botho consortium led by Patrice Motsepe, could stabilise these credentials.
As ever, it all boils down to price.
