Brit recommends £1.2bn takeover as analysts eye next Lloyd's bid candidate

Less than a year after returning to the stock market, insurer Brit has accepted a £1.22bn cash takeover offer from Canadian rival Fairfax Financial, with analysts expecting further bids for other listed Lloyd's insurers imminently.

The board of Brit, which has a strong syndicate presence in Lloyd's of London, recommended a bid by Fairfax that amounts to 305p, comprising 280p cash plus a 25p final dividend.

Fairfax has received irrevocable undertakings from Brit's majority shareholders Apollo Global and CVC Capital Partners, whose stakes combine at around 73% of the total.

The pair re-floated the company in London last March, having taking it private in 2011.

Mark Cloutier, the chief executive of Brit, said: “Our business is complementary to their group’s current offering and the deal represents an exciting opportunity to continue our story on an even stronger footing.

"Our position as a market-leading global specialty insurer and re insurer and our major presence in Lloyd's make us an attractive addition to Fairfax’s global footprint. There is very little crossover in our respective international operations."

Brit's underwriters focus on a broad range of commercial specialty insurance, including property, casualty and energy.

"Brit has an outstanding track record over the last ten years and will continue to operate on a decentralized basis once owned by Fairfax," said Fairfax chief executive Prem Watsa.

Broker Shore Capital noted that "another one bites the dust" in the Lloyd's consolidation spree.

"And so the M&A juggernaut amidst the Lloyd’s quoted insurers continues with just five players left following the bids for Catlin from XL," wrote analyst Eamonn Flanagan. "Hence the scarcity value increases."

He noted that the exit rating for Brit is higher than that negotiated by Catlin, which was struck at circa 1.45 times the 2014 net tangible asset value (NTAV), with the Brit final dividend of 25p ahead of the 18.75p he had forecast.

"Given the weight of ‘yes’ votes we expect the deal to proceed so all eyes will focus on the next potential candidate.

"As to the next potential bid in the sector, in our view the spotlight is again likely to settle on Beazley, Lancashire and Novae, all of which offer the much sought after presence in Lloyd’s.

"Beazley, whilst not ‘cheap’, offers a significant level of diversification for many potential predators, with a high quality specialty book. Lancashire offers scale and a high quality mix of underwriting within Lloyd’s, outside Lloyd’s and via its capital markets play."