Shore Capital acted as Joint Bookrunner on a £100m placing and
c.£7m open offer for Randall & Quilter Investment Holdings Ltd
Randall & Quilter Investment Holdings Ltd.
("R&Q", the "Group" or the "Company")
Placing and open offer to raise up to approximately £107 million
Randall & Quilter Investment Holdings Ltd., the global program underwriting management and legacy acquisitions specialist, is pleased to announce that it has conditionally raised gross proceeds of approximately £100 million through an oversubscribed placing of new Ordinary Shares to investors (the "Placing") and is proposing to raise gross proceeds of up to a further c. £7 million by way of an open offer of new Ordinary Shares to Qualifying Shareholders (the "Open Offer" and together with the Placing, the "Placing and Open Offer").
The Placing and Open Offer is conditional upon the passing of certain resolutions. A circular (the "Circular") is expected to be posted on or around 8 February 2019 containing notice of a general meeting which is being convened for the purpose of considering the relevant resolutions, at 71 Fenchurch Street, Ground Floor, London EC3M 4BS on 5 March 2019 at 11.00 a.m. and setting out the details of the Open Offer. A copy of the Circular will also be available from the Company's website at: http://www.rqih.com/.
A total of 65,359,477 new Ordinary Shares in the Company have been placed by Numis Securities Limited ("Numis") and Shore Capital Stockbrokers Limited ("Shore Capital") (together, the "Joint Brokers") pursuant to the Placing at a price of 153 pence per Placing Share (the "Issue Price"), raising total gross proceeds of approximately £100 million. The Placing Shares represent approximately 52 per cent. of the issued ordinary share capital of R&Q prior to the Placing.
In addition, in order to provide Qualifying Shareholders with an opportunity to participate at the Issue Price, the Company is making the Open Offer to all Qualifying Shareholders for up to 4,499,438 new Ordinary Shares on the basis of 1 new Open Offer Share for every 28 existing Ordinary Shares held on the Record Date. The total gross proceeds of the Open Offer will be approximately £7 million if the Open Offer is subscribed for in full.
The Issue Price represents a discount of approximately 15 per cent. to the closing price of 180 pence on 6 February 2019.
Commenting on the Placing and Open Offer, Ken Randall, Group Chairman and Chief Executive Officer said:
"We are very pleased to have raised these additional funds and are encouraged by the support received from new investors and existing shareholders. The proceeds from this Placing and also the Open Offer will be used to support the development of our program management business and assist in maintaining the AM Best credit and financial strength ratings of the Accredited companies. The proceeds will also replenish liquidity used or allocated to previously announced legacy acquisitions and will help to rebalance our equity : debt funding mix. R&Q is reaping the benefits of our transformation last year into a more focused business operating in two fast growing markets: program underwriting and legacy M&A. This transformation continues as are expanding our resources, hiring talent and restructuring to ensure we are best placed to serve our customers. With the support of shareholders and our recent debt issuance we will have greater capital firepower to support our strategy."
Background to and reasons for the Placing and Open Offer
The Group continues its focus on (i) its legacy acquisition activities and (ii) its program management business (Accredited) which is centered on fee generation through its licensed and rated platforms in the US and Europe where the Group acts as a conduit for capital providers, typically well-rated reinsurers, and niche underwriting businesses, predominantly MGAs.
The pipeline of new business opportunities in both legacy and program management is excellent. It is, however, a feature of our business that the exact timing for completion of new legacy deals is often uncertain, particularly in those cases where regulatory oversight or approval is required. As a consequence, the precise timing of profits from new legacy business can be unpredictable - the announcement in December regarding the delayed completion of the acquisition of Global Re US, until early 2019, is a very good example. The recognition of commission earnings from our fast growing program management business is typically deferred over the two years following the commencement of each program and thus the financial benefit of this business stream will benefit Group profits in future years. Both areas of the business have strong growth potential and going forward, we will have improved visibility of future income from program management which will help to counterbalance the potential volatility as regards the exact timing of future legacy earnings.
2018 was an exceptionally busy year for the Group's legacy business. Notably, in September, the Company announced its largest legacy acquisition (subject to regulatory approval). In 2018 the Group completed 18 legacy transactions and entered into 12 new program partnerships across the US, Bermuda, European and UK markets. A number of additional legacy reinsurances are in the final stages of completion which are also expected to be included in the Group's 2018 final results.
The Directors believe that this level of activity has been driven by a confluence of factors that has created an exceptionally attractive period within the legacy industry. These factors include, but are not limited to, regulatory changes impacting underwriters globally (including Solvency II, recent US tax reforms and certain OECD tax policies), Brexit, heightened M&A activity in the property and casualty insurance sector and the continuing separation of distribution from underwriting capital. The Directors believe that all of these factors will subsist for the foreseeable future and that attractive legacy investment opportunities will continue to arise.
In the legacy business, the Company has identified an attractive pipeline in both Europe and US with a number of well progressed deals, including:
i) A novation of UK employers' liability (EL) policies from a Gibraltar captive;
ii) The acquisition of an Irish UK captive;
iii) The assumption of workers' compensation policies from a Californian self-insurance pool;
iv) Reinsurance of a large US retailers' workers' compensation liabilities;
v) A loss portfolio transfer of a book of European business; and
vi) The acquisition of a Cayman captive of a European parent.
The pipeline for the program management business is most encouraging in the main geographies in which the Group operates with multiple opportunities at various stages of review and due diligence which suggests that the growth momentum seen in 2018 is likely to continue for the foreseeable future. Future annualised Gross Written Premium (GWP) from existing MGA arrangements is currently projected to be approximately $500 million. The growth in our program management business is driven by, among other reasons, the Group's comprehensive licences and strong credit ratings and, in Europe, the ability to provide a credible "Brexit Solution" for UK insurers seeking continued access to EU insurance markets. Recent upheavals in the Lloyd's market have added further opportunities and momentum.
Update on the Group's debt financing
On 28 December 2018 the Group raised $70m through the issuance of 10 year senior subordinated loan notes at a margin of 6.35 per cent. over the U.S. Dollar 3-month LIBOR.
The additional debt funding expands the Group's capital base to support growth in the business and, in conjunction with the net proceeds of the Placing and Open Offer, forms part of the Group's long-term financing strategy.
Use of proceeds from the Placing and Open Offer
The Company has raised gross proceeds of approximately £100 million pursuant to the Placing and will raise up to approximately £7 million pursuant to the Open Offer. The Placing and Open Offer have not been underwritten. The net proceeds from the Placing and any net proceeds of the Open Offer will be used to:
i) Support continued development of the program management business;
ii) Maintain the AM Best credit ratings of the Accredited entities;
iii) Pursue a number of identified legacy opportunities;
iv) Replenish liquidity used in connection with previously announced acquisitions; and
v) Re-balance the Group's funding mix following the issuance of the 10 year senior subordinated loan notes for $70m.
Approximately £3 million of the gross proceeds will be used to pay fees and expenses (including VAT) incurred in connection with the Placing and Open Offer (including broking commissions and other fees) assuming the Open Offer is subscribed for in full.
Details of the Placing and Open Offer
The Placing has been cornerstoned by two institutional investors introduced by a US asset manager with a track record of investments in the insurance industry.
Numis and Shore Capital are acting as joint brokers in connection with the Placing. The Placing is subject to the terms and conditions set out in the Appendix (which forms part of this announcement).
The New Shares will be credited as fully paid and will rank pari passu with the existing ordinary shares of the Company.
The Open Offer is less than €8 million (or an equivalent Sterling amount) in aggregate. Therefore, in accordance with Section 85 and Schedule 11A of FSMA, no prospectus will be made available in connection with the matters contained in this announcement and no such prospectus is required (in accordance with the Prospectus Regulation) to be published.
Application will be made to the London Stock Exchange for the New Shares to be admitted to trading on AIM and it is anticipated that trading in the New Shares will commence at 8.00 a.m. on 6 March 2019. Settlement of the New Shares in the form of Depositary Interests is expected to take place within the CREST system following Admission.
The Placing and Open Offer is conditional upon, among other things, Admission becoming effective, the Placing and Open Offer Agreement between Numis, Shore Capital and the Company, which was entered into today, not being terminated and the resolutions to be proposed at the General Meeting being passed without amendment.
Director's participation in the Placing
The following Director has agreed to subscribe for the following number of Placing Shares:
Number of Placing Shares
Value of Placing Shares at the Issue Price (£)
Total holding of Ordinary Shares following Placing
Percentage of the Company's enlarged issued share capital (before the issue of any Open Offer shares)
Related party transaction
Phoenix Asset Management Partners ("Phoenix") has agreed to subscribe for 13,071,895 shares in the Placing. Due to the size of Phoenix's existing holding of 24,390,734 Ordinary Shares in the capital of the Company representing approximately 19.4 per cent. of the current issued share capital, this transaction is considered to be a related party transaction pursuant to AIM Rule 13 of the AIM Rules.
The Directors consider, having consulted with Numis, that the terms of the related party transaction are fair and reasonable insofar as shareholders of the Company are concerned. As a result of Phoenix's subscription in the Placing, Phoenix will hold 37,462,629 Ordinary Shares representing approximately 19.6 per cent of the enlarged share capital (before the issue of any shares under the Open Offer).
For the reasons given above, the Directors believe that completion of the Placing and Open Offer and the approval of the Resolutions are in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions at the General Meeting, as they intend to do in respect of their own beneficial holdings of Ordinary Shares amounting to, in aggregate, 18,355,274 Ordinary Shares, representing approximately 14.6 per cent of the Ordinary Shares in issue as at the date of this announcement.
This announcement (including the Appendix which sets out the terms and conditions of the Placing) should be read in its entirety here.