Sanlam will bring life insurance subsidiary BrightRock fully into its stable and combine the fiduciary operations of Sanlam Trust with those of Capital Legacy Solutions.
In a SENS announcement on 3 February, Sanlam said the transactions will significantly strengthen its retail life insurance business in South Africa.
The transactions were concluded in two separate agreements.
Sanlam, which currently has a 62% stake in BrightRock, has agreed to buy the remaining 38% of BrightRock from minority shareholders for R399 million.
Further payments of between R95m and R437m will be paid over the next three years, subject to new business targets being met.
After the acquisition of the remaining 38% of the shares in BrightRock, Sanlam intends to transfer BrightRock’s business to the Sanlam Life licence.
BrightRock will remain a separate operating division of Sanlam Life, with its own brand, distribution, and product focus. The management team who founded the company will also remain in place.
Sanlam Retail Affluent chief executive Anton Gildenhuys said the two companies already have the largest market share in terms of new retail insurance sales sold by independent brokers, according to the latest NMG market share survey.
“The release of capital once BrightRock is transferred onto the Sanlam Life licence, and expense synergies arising from elimination of the licence, are expected to generate a significant uplift to earnings and dividends, but this process will take several years to achieve,” the SENS announcement said.
Sanlam said that since acquiring a 53% majority shareholding in BrightRock in 2017, the business “has grown significantly and created strong shareholder value”. From 2017 to 2019, BrightRock delivered an average operational return on group equity value of 21.5%, “significantly ahead” of Sanlam’s hurdle rate, the group said.
The transaction is subject to approval from the Prudential Authority (PA) and the FSCA and is expected to be finalised in the second quarter of this year.
Capital Legacy transaction
Sanlam said the Capital Legacy transaction will create a fiduciary services business offering life insurance under the Legacy Protection Plan.
Sanlam Private Wealth Fiduciary Services and Sanlam Corporate’s Legacy Beneficiary Fund are not part of the transaction.
The transaction will involve Sanlam Life disposing of Sanlam Trust to Capital Legacy for R390m in exchange for shares in Capital Legacy. At the same time, Sanlam Life will subscribe for further shares in Capital Legacy for R720m in cash, resulting in Sanlam owning a 26% stake in the enlarged Capital Legacy Group that will include Sanlam Trust.
Furthermore, Sanlam and Capital Legacy will conclude commercial arrangements through which Sanlam will earn additional profits in respect of all Sanlam clients serviced by Capital Legacy.
Sanlam will also have the first right to provide financial and other reinsurance to Capital Legacy on all new business.
Sanlam, through its 25% shareholding in African Rainbow Capital Financial Services Investments (ARC FSI), already has an indirect holding in Capital Legacy. ARC FSI holds 29% of Capital Legacy, which will reduce to 25% after the transaction as existing shareholdings are diluted.
Capital Legacy’s founder, Alex Simeonides will, through a trust, retain a shareholding of about 27%.
“Sanlam’s distribution and client base offer considerable opportunity for Capital Legacy to now access and grow even stronger. Sanlam will capture an extra profit share of 25% on business written for its own clients and through Sanlam and Sanlam-affiliated distribution channels,” the group said.
“Fiduciary planning often highlights additional financial needs for clients, which will be catered for by Sanlam’s wide range of solutions.
“By combining Capital Legacy’s innovative offering with Sanlam Trust’s mature estate, trust and beneficiary fund administration competencies and leveraging Sanlam’s distribution capabilities, we believe substantial value will be unlocked for all stakeholders.”
The transaction is subject to approval from the competition authorities, the PA and the FSCA. It is expected to be completed in the third quarter of this year.
‘Appreciable synergies’
Sanlam said both transactions represent a significant deployment of discretionary capital of about R1.1 billion, although its discretionary capital position “will remain strong” after the deals.
“The group is confident that the returns on these investments will exceed target return hurdles and that each transaction will generate appreciable synergies,” Sanlam said.
