Liberty Mutual to Buy Fosun’s Ironshore for About $3 Billion

  • Price to be 1.45 times tangible book value at end of year
  • Buyer advised by Barclays, sees deal closing in 2017

Liberty Mutual Holding Co., the fourth-largest property-casualty insurer in the U.S., agreed to buy Ironshore Inc. from Fosun International Ltd. for about $3 billion to expand in the specialty commercial market.

Ironshore will retain its management and brand after the completion of the deal, the buyer said in a statement Monday. Fosun acquired Bermuda-based Ironshore in 2015 and then sought an exit after a ratings firm cited concerns about the parent company’s financial strength.

Policyholder-owned Liberty Mutual is known for providing home, auto and workers’ compensation coverage in the U.S. The Boston-based company is among insurers seeking growth in niches where there is more of an opportunity to stand out from competitors. Ironshore protects commercial policyholders against environmental risks, damage to satellites in launch or orbit, and losses tied to political turmoil in international markets. It also offers liability coverage to corporate executives and health-care providers.

“The acquisition of Ironshore seems to have plenty of strategic merit, but it is notable that it will operate with an ongoing high degree of autonomy,” David Havens, a debt analyst at Imperial Capital, said in a note. “This will be a bit of an experiment in that regard for Liberty Mutual.”

The final price is subject to adjustments and will be 1.45 times the target company’s tangible book value at the end of this year. The deal is expected to be completed in the first half of 2017, according to the statement.

‘Financial Flexibility’

Fosun, led by billionaire Chairman Guo Guangchang, announced a deal in May 2015 to buy the 80 percent of Ironshore that it didn’t already own for at least $1.8 billion. The Chinese company then opted to exit Ironshore, which filed for an initial public offering in July, after ratings firm A.M. Best assigned a negative outlook to the Bermuda-based business.

The seller is rated Ba3 by Moody’s Investors Service, three levels below investment grade. The company said months ago that it was preparing to sell assets to help boost its credit score. Fosun had announced more than $15 billion in overseas acquisitions since 2010, and added assets including Club Med, Wall Street’s 28 Liberty building and Cirque du Soleil.

“As a global investment group, it is important for Fosun to have the capability and opportunity to accomplish exit of its investment and at the same time realize a reasonable return of investment,” Guo said in a separate statement. “With this transaction, the group’s financial flexibility and capabilities will be further enhanced.”

‘Greater Capacity’

Ironshore was founded in December 2006 with more than $1 billion in private equity backing. Two years later, Chief Executive Officer Kevin Kelley and President Shaun Kelly joined the property-and-casualty insurer from American International Group Inc.

“The combination of Ironshore and Liberty Mutual is a win-win proposition,” Kelley said in the statement. “Ironshore will become part of another A-rated company with a global reach, a strong balance sheet, wide client base and a much greater capacity to drive profitable growth.”

Ironshore has about 800 employees in 15 nations, with operating hubs in the U.S., Bermuda and London. It had about $2.2 billion in policy sales in 2015, according to the statement. Liberty Mutual has a staff of more than 50,000.

Liberty Mutual is seeking to win market share as it competes with Warren Buffett’s Berkshire Hathaway Inc. and Allstate Corp. to be the second-largest P&C company in the U.S. Each had about $30 billion in policy sales in 2015, according to data from the National Association of Insurance Commissioners, about half the figure at No. 1 State Farm Mutual Automobile Insurance Co.

‘Ideal Complement’

“Ironshore has a track record of profitably underwriting global and diverse specialty-risks insurance and is an ideal complement to Liberty Mutual,” David H. Long, the CEO of the buyer, said in the statement.

Barclays Plc was the buyer’s banker on the deal. The insurer got legal advice from Skadden, Arps, Slate, Meagher & Flom LLP. Fosun was advised by Citigroup Inc. and Aon Plc.

Bermuda-based insurers have been drawing suitors from the U.S., Asia and Europe who are seeking to diversify their risks and gain scale. Japan’s Sompo Holdings Inc. announced a deal in October to buy Endurance Specialty Holdings Ltd., and Exor SpA, led by Italy’s billionaire Agnelli family, acquired PartnerRe this year. Both deals were valued at about $6 billion.

Liberty Mutual also expanded through an acquisition in 2008 when it acquired Safeco for more than $6 billion to add auto customers in the U.S.

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