Sanlam Life, South Africa’s second-largest life assurer, will buy a 50% stake in niche life assurer Channel Life from its parent, PSG Group, for R116,5-million, the two companies said on Thursday.
The purchase price represents 125 cents per share for Channel Life, valuing the company at approximately R230-million. At the end of February this year, Channel Life had an asset base of R2,1-billion and generated headline earnings of R39-million for the previous 12 months.
PSG, which previously had a 74% stake in Channel Life, will retain a 35% holding in the smaller insurer, after having bought back Arch Equity’s 26% shareholding in Channel Life.
Arch Equity is PSG’s black economic empowerment partner.
The effective date of the transaction is August 1 2005, and the deal is subject to several conditions precedent, including the approval of the competition authorities.
Payment terms of the transaction include a cash payment of R106,22-million by Sanlam, with the balance payable as soon as reasonably possible after July 31 2006, subject to the value of new business generated by Channel Life for the year beginning August 1 2005.
The balance may be halved — reduced to R5,12-million from R10,25-million — depending on the amount of new business generated.
Sanlam said it has identified Channel as a rapidly growing player in the life-insurance field, with a strong focus on the emerging life market (ELM).
Channel offers Sanlam complementary ELM distribution through its direct marketing methods and skills, a strong and experienced management team and access to an enhanced product range, such as credit life insurance.
Channel Life will retain its own brand, market positioning and operational independence and Channel products will be sold through the Sanlam distribution network.
Sanlam, meanwhile, will reverse its 55% interest in Safrican into Channel. Safrican CEO Nthabiseng Mmatli will remain in that position.
Commenting on the transaction, Sanlam CEO Johan van Zyl said: “Sanlam has identified the entry-level life-insurance market as an important component of its growth strategy. This transaction complements our acquisition of African Life through the addition of direct marketing skills and credit life-insurance products.
“Our majority interest in Channel provides Sanlam with a meaningful presence from which to accelerate our existing offering in this segment. Sanlam plans to follow a multiple client-facing and branding strategy within the ELM insurance business in order to grow more rapidly, specifically in direct marketing channels, credit life offerings and bancassurance arrangements,” he explained.
“Safrican will be reversed into Channel to provide Safrican with improved access to ELM distribution opportunities and excellent management. Channel’s business has the potential to generate good results in new business growth and recurring premiums.”
Jannie Mouton, chairperson of the PSG Group, said the transaction comes at the right time for all parties.
“Channel Life has reached the stage where it requires a shareholder of reference, able to continue funding its growth and unlocking further synergies. We are looking forward to working with Sanlam as our new partner, and retaining a significant interest in Channel.”
René Otto, CEO of Channel Life, added: “Through its efforts to ‘Africanise’ the entry level of the South African insurance market, Channel has secured a successful niche for itself and is offering affordable and appropriate products to the ELM.
“Channel’s direct marketing methods and skills are complementary to Sanlam’s and we envisage an effective mutual utilisation of distribution methodologies in the future.
“Channel’s focus on growth is aimed at expanding its retail recurring premiums through a multichannel distribution strategy including inbound and outbound telesales, setting up a national broker distribution arm and creating a referral marketing division.
“I am looking forward to working with Nthabiseng Mmatli of Safrican and will rely on her in the implementation of our new initiatives.
“In addition, Sanlam’s majority shareholding will lend further credibility to our business and we expect Channel to continue to benefit from PSG’s entrepreneurial influence.”
The plan to list Channel on the JSE Securities Exchange by the end of 2007 is still in place, Otto confirmed, unless one of the shareholders buys out the others before then.
Channel’s recently announced private trading of shares over the counter will also continue, although it is expected that the stock may become difficult to accumulate following the transaction with Sanlam. — I-Net Bridge