On 4th April 2023, R&Q Insurance Holdings Ltd ("R&Q", the "Company" or the "Group") announced that it was undertaking a strategic initiative to separate its legacy insurance business ("R&Q Legacy") and its program management business ("Accredited").
Today R&Q announces that it has entered into a conditional agreement with funds advised by Onex Corporation (the "Purchaser" or "Onex"1) to sell 100% of the equity interest in Randall & Quilter America Holding Inc., the holding company of Accredited (the "Sale"). Closing of the Sale is conditional on R&Q shareholder approval, regulatory approval and customary consents from certain R&Q debt providers.
Key sale highlights
- Proposed Sale of Accredited for an enterprise value of $465m, representing an expected equity value of approximately $438 million.
- Net cash proceeds from the Sale are expected to be approximately $300 million ("Expected Net Cash Proceeds").
- Net cash proceeds available for utilisation immediately on closing are expected to be between approximately $170 million and $210 million ("Available Net Cash Proceeds").
- The Available Net Cash Proceeds will be entirely used to facilitate a material de-leveraging of R&Q.
- The Sale is conditional on the transfer of R&Q's Chief Executive Officer, William Spiegel, and Chief Financial Officer, Thomas Solomon to Accredited upon closing.
- Upon closing of the Sale, Group Non-Executive Chairman Jeff Hayman will act as Chairman and Interim Chief Executive Officer of R&Q. The Board will initiate a search to appoint a new Chief Executive Officer of R&Q at the appropriate time.
- Upon closing of the Sale, Paul Bradbrook, currently Chief Accounting Officer of R&Q, will become Chief Financial Officer of R&Q and a member of the Board of Directors.
Background and Board recommendation
On 4th April 2023, the Board announced that it had decided to explore a full separation and deconsolidation of Accredited and subsequently ran a sale process to find a suitable partner for its clients and colleagues and to realise full value for R&Q and its shareholders. The sale process commenced in April 2023 with an extensive global outreach to potentially interested parties, representing a broad range of financial and strategic partners. The Sale is the outcome of this process.
The Non-Executive Directors unanimously support the Sale and strongly encourage shareholders to vote in favour of the resolution to approve the Sale at the Special General Meeting.
The Non-Executive Directors believe the terms of the Sale are in the best interests of R&Q, its shareholders and its other stakeholders. The Non-Executive Directors believe that the Sale represents R&Q's best opportunity to achieve a full separation and deconsolidation of Accredited from the Group, in order to enable Accredited to retain a fully independent rating.
In the event that Accredited does not retain a fully independent rating, the Board is clear in its view that there is a significant risk that AM Best will downgrade Accredited. Such a downgrade would have a detrimental impact on Accredited's ability to successfully operate its business, particularly in the United States where an 'A-' financial strength rating is a minimum requirement from Accredited's counterparties. The Board therefore believes that a downgrade would have material implications on R&Q's ability to continue as a going concern.
Additionally, the Board is of the view that the current financial leverage of R&Q is unsustainable and if the Sale were not to proceed and the Available Net Cash Proceeds were not available to facilitate a material de-leveraging of R&Q, R&Q may not be able to continue to satisfy or obtain waivers on the covenant requirements for its existing debt facilities or repay certain of its debt facilities as they become due. A potential default or cross-default by R&Q on its existing debt facilities may lead its lenders to take action to protect their interests by requiring collateral or enforcing their security over certain R&Q assets, resulting in a materially worse outcome for R&Q and its shareholders.
The Sale constitutes a fundamental change of business and under the AIM Rules for Companies, Rule 15 will apply. The closing of the Sale is therefore conditional on the approval by a majority of shareholders at a Special General Meeting. The Special General Meeting of R&Q's shareholders is expected to take place by the end of the year.
As Accredited and certain of its subsidiaries are authorised and regulated entities, the Sale is also conditional on obtaining customary regulatory approvals. The Sale is also conditional on customary consents from certain R&Q debt providers. Closing of the Sale is expected to occur in late Q1 2024 or early Q2 2024.
Future strategy of R&Q
The Sale refocuses R&Q as a legacy insurance business in Bermuda, Europe, the US and the UK. After the Sale, R&Q will have a legacy platform with over 150 people across M&A, claims management, servicing, actuarial and finance functions. In addition, it will have Reserves Under Management of over $1.1 billion and a strong transaction pipeline. R&Q Legacy will continue to be an important player in the legacy market.
The Sale will enable the Board to undertake a material de-leveraging of R&Q which will enhance the business' ability to execute the Board's existing strategy of transitioning to a capital efficient and stable recurring fee-based business model. The Board will also continue to focus on minimising future reserve volatility as well as driving improved underlying performance of R&Q through better automation and expense management.
In parallel to executing its organic plan, the Board will also continue to explore potential transactions to de-risk and reduce volatility in R&Q Legacy's balance sheet or otherwise maximise value to stakeholders.
Board and management
The Sale is conditional on the transfer of R&Q's Chief Executive Officer, William Spiegel, and Chief Financial Officer, Thomas Solomon, to Accredited upon closing. William's and Thomas' employment and appointments as Chief Executive Officer, Chief Financial Officer and as Executive Directors of R&Q and its subsidiaries will therefore cease on closing of the Sale. William and Thomas will retain their current positions until closing of the Sale and are working with the Board to ensure the successful closing of the Sale and will assist with an orderly transition post closing.
Upon closing of the Sale, Group Non-Executive Chairman Jeff Hayman will act as Chairman and Interim Chief Executive Officer of R&Q. The Board will initiate a search to appoint a new Chief Executive Officer of R&Q at the appropriate time. In addition, Paul Bradbrook, currently Chief Accounting Officer of R&Q, will become Chief Financial Officer of R&Q and a member of the Board upon closing of the Sale, subject to customary approvals.
All of R&Q's other Non-Executive Directors, Philip Barnes, Eamonn Flanagan, Jo Fox, Jerome Lande and Robert Legget will continue in their current roles.
Commenting on the Sale, Jeff Hayman, Chairman of R&Q, said:
"The Non-Executive Directors unanimously recommend the sale of Accredited to Onex. We believe this transaction represents the best possible outcome for R&Q's stakeholders, enabling R&Q to realise value for a business we have grown from a standing start in 2017 while allowing Accredited to maintain its essential independent financial strength rating of 'A-' under new ownership. Onex has an extensive track record of successfully investing in businesses across the insurance value chain, making them the ideal partner for Accredited to continue its growth trajectory as a leading transatlantic program manager.
"The Sale will generate meaningful net cash proceeds which will facilitate a material de-leveraging of the Group while also strengthening its liquidity and working capital position, which will support R&Q's ongoing commitments and requirements. Furthermore, the Sale will create a simpler and better capitalised R&Q which will be positioned to continue to execute the existing strategy of transitioning to a capital efficient and stable recurring fee-based business model.
"R&Q is a longstanding leader in the legacy market, with an established platform, more than $1.1 billion of Reserves Under Management and an over 30-year history of executing innovative transactions. The landmark deal earlier this year to acquire and professionally manage the non-insurance legacy liabilities of MSA Safety now means R&Q Legacy earns fees from two distinct but complementary pools of liabilities: traditional insurance reserves and corporate non-insurance liabilities. The Sale will allow us to refocus fully on this business, while our materially de-leveraged balance sheet, alongside our ability to deploy third-party capital via Gibson Re, will enable us to pursue our pipeline opportunities with renewed confidence. While we have more work to do, including implementing further operational improvements, we now have a clear pathway towards a sustainably profitable legacy business."
Commenting on the Sale, Adam Cobourn, Managing Director of Onex Partners, said:
"We are pleased to have the opportunity to establish Accredited as an independent, market-leading program management platform. Accredited has all the ingredients for success as a hybrid carrier, including a talented management team, a well-diversified and high-quality book of business, strong reinsurer relationships and robust underwriting and risk management protocols. It will be well positioned for responsible growth with a strong balance sheet and backing from Onex Partners. Investing in the insurance industry has been a core strength for Onex for many years. We look forward to supporting Accredited's management team in this next phase of growth."
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