15/01/2016 - 15:24

UPDATED: Aust Reliance sold for $31m

15/01/2016 - 15:24


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Australian Reliance has become the third major insurance broker in Western Australia to change hands in the space of five months, with newly listed company PSC Insurance Group agreeing to buy the Perth-based group.

Australian Reliance has become the third major insurance broker in Western Australia to change hands in the space of five months, with newly listed company PSC Insurance Group agreeing to buy the Perth-based group.

PSC announced today a conditional agreement to pay $31.57 million for Reliance Group, which owns the Australian Reliance corporate insurance broking business and a network of 33 franchise operations.

The purchase price is substantially lower than for competitors CKA Risk Solutions and Strathearn Insurance Brokers, both of which have changed hands in recent months.

US-based Arthur J Gallagher paid an estimated $55 million to $60 million for Strathearn last month, while London-based Willis is understood to have paid an even higher price for CKA in August.

The recent spate of acquisitions means that EBM, which was founded in Perth in 1975, is the only locally owned player among the leading insurance brokers in WA.

EBM is ranked as the second largest insurance broker in WA, according to the Business News Book of Lists, just ahead of Reliance Group and the merged Willis CKA.

PSC’s announcement comes one month after the Melbourne-based company listed on the ASX, following a $43 million initial public offering.

The purchase of Australian Reliance has been structured so that local management of each operation will retain equity in their business.

PSC will buy 70 per cent of the Perth broking operation, 60 per cent of Brisbane, 66 per cent of Melbourne and 100 per cent of Sydney.

It will also buy 100 per cent of Reliance Franchise Partners and 50-100 per cent of the 33 franchise entities.

That includes 13 franchises in WA.

In addition, PSC will buy a book of loans from Franchise Partners and parent company Australian Reliance.

PSC said it will pay up to 69 per cent of the purchase price in cash, with the balance presumably in the form of PSC shares.

Upon completion, PSC director John Dwyer will be appointed chief executive of Reliance Group and Dougald Elmer will be chief financial officer.

It is unclear what role will be played by former West Coast Eagles footballer Andrew Donnelly, who is the current CEO, or Kim Hanson, who is the current CFO.

Mr Donnelly and Mr Dwyer did not return calls from Business News.

The AR acquisition continues the rapid expansion of PSC, according to the commentary in its recent prospectus.

It comprised a single general insurance broking business when it was founded in 2006, and has since made 18 acquisitions and funded nine startups.

The group operates 21 separate businesses with forecast operating revenue of $60 million in FY16.

Australian Reliance was founded in 1998 and employs over 100 staff in offices in Perth, Sydney, Brisbane and Melbourne, according to its website.

It is a principal member of the Steadfast Group, which provides services to 304 network brokers around Australia.

Global insurance group Lockton acquired a 10 per cent stake in Australian Reliance in 2009 but sold out in 2012, when it started trading under its own name.

UPDATE: On Tuesday 19 January, PSC said its conditional agreement included the acquisition of the business assets / trading companies of two AFS licencees.

"PSC is well aware of concerns that those licencees have failed to comply with some of their legal obligations, including those connected with the operation of a trust account," PSC said in a statement.

"It has been advised that breaches or potential breaches by those licencees have been notified to the regulator.

"PSC has not contracted to acquire the licencee entities and, on that basis, will not inherit any failure by them to comply with their obligations as a licencee."

PSC said that once it completes the acquisition, it sees itself as part of a solution for customers of Reliance Group, by providing a safe and secure platform for the servicing of their future insurance needs.

On Wed 20 January, The West Australian reported that Reliance Group parent company Vantage Holdings Group and two licenced broking subsidiaries had launched legal action in the WA Supreme Court on Monday alleging Mr Donnelly and Mr Hanson had misappropriated more than $5.1 million of trust funds.

This followed investor Jon Fogarty and allies gaining boardroom control of Vantage last year.






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