TM signs a purchase agreement to acquire Lykill fjármögnun hf.
As announced on July 21st 2019, Tryggingamiðstöðin hf. (TM) has been in exclusive negotiations with Klakki ehf. in order to acquire Lykill fjármögnun hf. (Lykill). These negotiations concluded today with the signing of a purchase agreement to acquire 100% stake in Lykill. The purchase price is ISK 9,250 million plus a payment equal to the amount of distributable after-tax-profit of Lykill for the operating year of 2019. Total equity of Lykill amounted to ISK 11,688 million at the end of June 2019. The purchase price equals P/B of 0.82 based on estimated total equity at year end 2019.
The purchase price will be paid with cash and will be funded with new equity issue of up to ISK 3,000 million as well as with sale of assets. In connection with the acquisition, TM has secured bridge funding of up to ISK 3,000 million to ensure flexibility in its investment portfolio management.
The acquisition of Lykill is in accordance with TM’s strategy and TM’s operations will from now on be divided into three equally important pillars; insurance operations, lending activities and investment activities. Considerable opportunities exist to increase the profitability of Lykill´s operations. TM expects to obtain significant synergies, both on the revenue side as well as on the cost side, increase funding options and lower the funding cost. Furthermore, TM will seek a more efficient capital structure.
TM considers the acquisition to increase shareholder value, as EPS is expected to increase by 20-30% in the coming years.
Total assets of Lykill amounted to ISK 40,186 million on June 30th 2019, whereof the leasing and loan portfolio amounted to ISK 32,330 million. Lykill´s equity ratio (CAD) was 29.2%. Following the acquisition TM’s balance sheet will almost double in size. TM´s solvency ratio was 1.74 at the end of June 2019 but the target range is between 1.4 and 1.7. Strong equity ratios of both TM and Lykill underpin a continued strong solvency ratio of TM post acquisition of just over 1.5 including the planned equity raise.
TM will call for a shareholder meeting to give more information on the acquisition as well as to ask for an approval of the planned equity issue. Changes to the company´s articles of association will also be proposed. As of today, TM is an insurance company but if the proposals will be approved TM will become a parent company of two subsidiaries, an insurance company and a lending company.
The transaction is subject to the approvals of TM‘s shareholders meeting, the Financial Supervisory Authority and the Competition Authority. If the transaction goes through, Lykill is estimated to become a part of the consolidated entity at the end of year 2019.
TM‘s advisors on the transaction are BBA // Fjeldco, Deloitte and KPMG.
Further information can be provided by Sigurður Viðarsson, CEO of TM: