Truist Financial Corp.’s plan to sell its remaining stake in Truist Insurance Holdings at a valuation of $15.5 billion marks a better-than-expected price for the business, an analyst said Tuesday.
Keith Horowitz of Citigroup reiterated a buy rating on Truist and said that while the sale of Truist Insurance Holdings is not a surprise, he had been expecting a dilution of 40 cents a share from the loss of earnings from the insurance-brokerage unit. Instead, Truist
TFC,
said the dilution from teh deal would be about 20 cents a share.
“This was widely expected, but the incremental news is the pricing on the sale was slightly greater than expected resulting in better capital accretion,” Horowitz said in a research note.
The deal comes about a year after Truist said it would sell a 20% ownership stake in Truist Insurance Holdings to Stone Point Capital at a total valuation of $14.75 billion.
Earlier on Tuesday, Truist Financial said the buyer for the remaining 80% of the Truist Insurance Holdings business is an investor group led by Stone Point Capital and Clayton, Dubilier & Rice, with capital from Mubadala Investment Co., as private-equity firms build up their presence in the insurance business.
The deal comes at a time when banks are beefing up their balance sheets ahead of a potential economic downturn, and as federal regulators have proposed higher capital requirements for lenders.
It’s also a further sign of interest in the insurance sector from private-equity firms. One example is Leonard Green & Partners, which joined Hub International as a minority investor last year at a valuation of $23 billion for the insurance brokerage. Hub International is the acquisitive portfolio company of Hellman & Friedman.
Brad Ptasienski, senior partner at consulting firm West Monroe, said the firm is working on a number of potential sales processes in the insurance sector.
“There’s a good amount of activity,” Ptasienski said.
The deal comes two months after Aon PLC
AON,
said it would pay $13.4 billion for NFP, a portfolio company of Madison Dearborn Partners and HPS Investment Partners.
NFP is also listed as a portfolio company of Stone Point Capital, one of the two private-equity firms buying Truist Insurance Holdings and a specialist in insurance distribution, underwriting and services.
Along with NFP, Stone Point Capital’s portfolio companies include insurance broker Alliant Insurance Services and insurance provider Allied Benefit Systems.
Clayton, Dubilier & Rice has been less active in insurance but is known for data-driven investments in healthcare and industrial companies.
“It’s a good partnership” to own Truist Insurance Holdings, which will likely hunt for acquisitions for inorganic growth when it becomes an independent company, Ptasienski said.
For its part, Truist Insurance Holdings ranks as the fifth-largest insurance brokerage in the U.S.
Truist said it will evaluate a “variety of capital deployment options” for the roughly $10 billion in cash proceeds from the deal, “including a potential balance sheet repositioning.”
Prior to any capital deployment, Truist said the sale of Truist Insurance Holdings and the reinvestment of the $10.1 billion of the expected cash proceeds is estimated to be dilutive to 2024 earnings per share by 20 cents a share, assuming the sale had closed at the beginning of 2024 and the proceeds from the sale had been reinvested in cash yielding 4.5%.
The dilutive effect of 20 cents a share reflects the loss in earnings of roughly 45 cents a share from the sale of Truist Insurance Holdings, which was offset by about 25 cents a share from reinvesting the $10.1 billion.
The deal is expected to close during the second quarter.
Truist’s stock was down by 1.5% on Tuesday.
Chief Executive Bill Rogers said the transaction “will further strengthen our balance sheet, afford us the ability to maintain our earnings profile, and create significant ongoing flexibility to invest in our core banking franchise.”
Truist estimated the merger would boost its Common Equity Tier 1 ratio by 2.3% and increase its tangible book value per share by $7.12, or 33%.
The CET1 ratio is defined as the core capital a bank holds in its capital structure against its risk-weighted assets to withstand financial distress.
Clayton, Dubilier & Rice and Stone Point teamed up last August to buy Focus Financial Partners Inc., an investment adviser, for about $7 billion.
Truist is the result of the 2019 merger of BB&T and SunTrust.
Private-equity firms such as Apollo Global Management Inc.
APO,
and Blackstone Inc.
BX,
have been increasing their presence in the insurance sector in recent years as a way to diversify and boost their assets under management.
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