10 June 2015Bermuda analysis

The “roads to exit” have increased for captives

More companies are considering exit strategies for parts of their business but there are also more options available for achieving this in the most cost-effective way.

This is the opinion of Eric Haller, senior vice president M&A, Randall & Quilter Investment Holdings, who spoke to delegates at the Bermuda Captive Conference held this week (Monday June 8 to Wednesday June 10).

Haller listed a number of reasons that a company may consider such an exit strategy including a change in strategy, a change in ownership, financial stress, operational changes, a desire to use capital in different way or simply a desire to streamline and become more efficient.

But he said the number of “roads to exit” have also increased and include a managed run-off programme; an accelerated exit through commutation, novation, or long term business transfer; or a sale to a third party.

In relation to a sale, however, Mark Allitt, senior manager, KPMG, stressed that any seller will have a number of concerns that need to be overcome for a deal to take place.

“The seller’s biggest concern, in my experience, will be around claims control and claims handling. They want to be reassured that the buyer is going to handle claims in the same way as before. While it is true that any acquirer will look to save money around claims, it will usually be on the way they are managed rather than whether and how quickly they are paid,” Allitt said.

He added that the price an entity is sold for can also be a controversial subject, not because the seller is looking to gain real cash from it but because they need to justify the sale as being a worthy strategy option. “Plus, many think: if I am going to relinquish control of my claims, I want sufficient value for that,” he said.

Haller added that when selecting a suitable buyer, the seller will consider: the company’s track record, relationship with regulators, credit worthiness, ability to execute the deal and its reputation.