Digital insurance company WeSure is buying control of insurance group Ayalon Holding Ltd. (TASE: AYAL) for NIS 354 million.
WeSure will buy 50.4% of the shares in Ayalon. The share price in the deal, NIS 38.6, represents a premium of 33% over Ayalon's market price at the end of last week.
According to the companies' notifications to the Tel Aviv Stock Exchange (TASE), the deal may be expanded in the coming months. Rahmani's executor remains with 16.8% of the shares in Ayalon, and he is entitled to notify WeSure by August 1 of their sale on the date that the current sale is completed. The additional proceeds could amount to NIS 181 million.
If the additional purchase f shares takes place, WeSure will buy a total stake in Ayalon of 67% for NIS 473 million.
The deal is subject to fulfilment of preconditions, among them approval by the Competition Authority and by the Capital Markets, Insurance and Savings Authority.
For WeSure's co-founders and controlling shareholders Emil Vainshel and Nitzan Zeir-Harim, the deal represents a return to the company they led in the previous decade, when Vainshel served as CEO of Ayalon and Zeir-Harim was a senior VP. After the acquisition is completed, WeSure plans to install its digital infrastructure at Ayalon in order to create a substantial platform turning over billions of shekels annually, which will make it easier for it to penetrate overseas markets.
"We are very familiar with the management and staff and know Ayalon's business well," Vainshel told "Globes" after the news of the acquisition broke. "For us, this is a test laboratory for the new technology we have developed at WeSure, so that we can check how it works on a large scale in the Israeli market. This is an opportunity for us to realize our vision of multi-branched, multi-channel activity, with the help of the insurance agents who work with Ayalon, beyond the digital set-up."
The acquisition price is three times WeSure's shareholders' equity, which was NIS 115 million a t the end of the first quarter of 2021. The company is still examining how it will finance the deal. It has several possibilities, from bank credit to the non-bank credit companies to a debt offering on the capital market.
Vainshel and Zeir-Harim beat other companies that were recently reported to be interested in buying control of Ayalon from Rahmani's heirs, among them ILD Insurance. Commissioner of Capital Markets, Insurance and Savings Moshe Bareket refused to allow the sale of Ayalon to any of the major insurance groups for fear of harm to competition.
At the end of the first quarter of 2021, Ayalon had assets of NIS 14.8 billion under management. It posted a comprehensive profit of NIS 61.5 million for the quarter on revenue of NIS 742 million.
WeSure, which was founded four decades after Ayalon, in 2018, has a current market cap of NIS 410 million, even though its business figures are small. At the end of the first quarter it had NIS 690 million under management, 4.7% of the assets managed by Ayalon. WeSure's comprehensive quarterly profit was NIS 1.8 million on revenue of just NIS 28 million.
WeSure was floated in February, raising NIS 85 million at a post-money valuation of NIS 385 million.
Ayalon is the sixth largest insurance company in Israel, but alongside growth in areas such as health insurance, it has not grown exceptionally in its core activity - general insurance such as home and vehicle insurance, in comparison with its competitors. While the Insurance and Financial Services Index on the Tel Aviv Stock Exchange rose 114% in the last five years, Ayalon's share price fell 21%, against a background of under-performance in comparison with its competitors and internal battles in its management. In the past year. however, with the reports of the expected transfer of control, Ayalon's share price has risen 130%.
Short cut to overseas markets
Through the acquisition of control of Ayalon, WeSure's founders hope to find a short cut to additional markets and areas of activity that were not in its strategic plans, such as health insurance.
Vainshel and Zeir-Harim aimed the company they founded at home and vehicle insurance, relatively simple forms of insurance, in which the ability to be digital and quick gives immediate added value to the company and its insured.
By contrast, areas such as health insurance and long-term savings (in which Ayalon is active) generally require the involvement of professionals such as insurance agents or consultants, advantage that Ayalon enjoys, which could make it easier to carry out the necessary adaptations of WeSure's digital systems to new types of business.
Such adaptations are important mainly because WeSure is not making do with the Israeli market and is aiming at new markets overseas. It has already received a license to operate in New Jersey. By the time it starts operating in the US, assuming that the acquisition of Ayalon is completed, it will come with experience of managing NIS 15 billion, compared with less than NIS 1 billion that it manages today.
For further development in overseas markets in the US and Europe, that makes a material difference. The combination of greater assets and a broader range of products could open the door more fully to entering other countries.
Published by Globes, Israel business news - en.globes.co.il - on June 27, 2021
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