White Mountains Insurance Group has revealed the cost of its investment into insurance and reinsurance linked asset manager Elementum Advisors, LLC, saying that the 30% stake was purchased for $55 million.
Which means that at the time of the acquisition of the stake, insurance-linked securities (ILS) fund manager Elementum was valued at $183 million for the purposes of the investment.
As we first revealed back in April, White Mountains had targeted the acquisition of a 30% stake in the Chicago headquartered ILS investment management company Elementum Advisors.
The investment was then formally announced as closed as of May 31st, as White Mountains acquired 30% of the Elementum Advisors management company for a cash consideration now disclosed in a filing as $55 million.
That means a valuation of $183 million for Elementum, which based on the fact the ILS fund manager has around $4 billion of assets under management, an experienced and respected team, core investor relationships and has developed access to risk over the years it has been in operation, compares well to the costs of other ILS related M&A deals.
Of course there isn’t a great deal to compare the White Mountains and Elementum deal with, given ILS M&A while the talk of the market has not seen significant activity, given the relatively small size of the market still.
Markel CATCo was acquired by Markel for roughly $200 million at a time when the retro reinsurance manager had around $2.8 billion of assets under management.
Markel then acquired Nephila Capital for around $975 million, at a time when that manager had around $12 billion of reinsurance linked assets.
SCOR recently acquired Coriolis Capital, but no acquisition cost has been disclosed at this time.
So it’s hard to compare, aside from based on the assets under management of an ILS manager. But that’s not a fair reflection, as valuation multiples will vary wildly in ILS depending on how much infrastructure value a manager has created itself, as well as how unique its product or investor offering is.
No matter how the valuation compares, the investment from White Mountain is no doubt an attractive monetisation opportunity for the Elementum principals, as well as a sound transaction to help drive further growth and scale.
White Mountains said that it sees the Elementum business as “a well-positioned business in an attractive sector” having a “strong investment performance track record, spanning 15 years.”
In addition, White Mountains filing references the “experienced management team, led by Tony Rettino and John DeCaro,” who retain a significant stake in the ILS manager, as the founding management team held onto the other 70%.
The addition of an ILS investment and fully collateralized reinsurance underwriting business has benefits for White Mountains, given the firm already has good capital markets access and relationships that it can leverage to help develop the Elementum business further.
The company cites the attraction to ILS management, highlighting the “fee-based business” that “does not entail underwriting risk.”
Putting its conviction further behind the deal, White Mountains also invested $50 million of its own money from its investment portfolio into the Elementum ILS funds.
That aligns White Mountains not just with the fee income and manager performance at Elementum, but also with the end-investors as a risk taking allocator to the ILS funds managed.
As ever, the ILS market is awash with rumours on who could be next, as some of the smaller to mid-sized ILS fund managers consider their options for partnerships or outright sales.
But it does take a meeting of minds for deals to flow, as culture, ambition, relevance of the fit and timing are all vital to making these deals work.
It’s understood that Elementum had been looking for a stakeholder for some months prior to the White Mountains transaction coming to light. These things do not move quickly and it’s highly possible a number of others are either shopping themselves for a valuation, or actively in talks at this time.
However, the number of independents has shrunk significantly now, meaning options for those that might look to buy into the ILS space are becoming increasingly limited.
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