BGC Partners Inc. (“BGC”) has agreed to acquire 100% of Besso, with ongoing management and employees rolling over a proportion of their existing Besso shareholdings into BGC shares. The transaction places an entire enterprise valuation of Besso at £70.5m, however the final purchase price will be subject to various adjustments by reference to completion accounts, which the Company currently anticipates to be as at 31st March 2017.
In order to put this into context, the same adjustments applied to Besso's 31stAugust 2016 Balance Sheet would result in estimated proceeds to B.P. Marsh of £20.6m net of transaction costs and pre-tax. This equity stake was most recently valued by B.P. Marsh at £20.1m as at 31st July 2016. Completion of the transaction will be subject, inter alia, to FCA approval being granted and as part of the terms of the transaction Daniel Topping, the Company's Chief Investment Officer, will resign as a Non-Executive Director on the Boards of Besso and Besso ESOP Trustee Limited.
Besso commenced a strategic review in August 2015, engaging Canaccord Genuity to assess its strategic options. During this time B.P. Marsh has seen its valuation of Besso increase significantly and the Company's gross proceeds from this sale will represent an increase of c. 48% on its published valuation of the same stake in Besso at 31st July 2015 of £13.9m.
In the year to 31st December 2015, Besso achieved Revenues of £37.6m (an increase of 16% on 2014) and EBITDA of £4.17m (an increase of 15% on 2014), and it is continuing this trend in 2016, where it is on track to achieve EBITDA in excess of £10m.
In addition to the sale proceeds, B.P. Marsh's existing shareholder loans of c. £1.36m will be repaid in full upon completion. In the 2017/18 financial year the Company was forecasting an overall income yield of 0.64% on its Besso stake, and the Board is confident that this will be easily replaced and exceeded as a result of reinvestment of the proceeds of this sale.
Consequently, following completion of the transaction and subject to adjustments at completion, B.P. Marsh expects to have additional funds available of approximately £18.37m (after transaction costs and tax). All of the above calculations are based on the August balance sheet, and therefore are subject to change. The Board of B.P. Marsh intends to continue to strike a balance between utilising funds for investment for long-term capital growth, whilst providing shareholders with a meaningful ongoing return.
Investment funds will be targeted to both the existing portfolio to enable those businesses to develop further and to pursue new opportunities. The current pipeline of new opportunities includes start-up and early stage, as well as more developed, businesses particularly within the insurance intermediary sector both in the UK and internationally. B.P. Marsh has expanded geographically in recent years and now holds investments in Australia, South Africa and Singapore as well as throughout the UK. The international strategy remains the same; to focus on territories with good opportunity for business development in partnership with a London investor and a suitably developed regulatory and compliance environment.
B.P. Marsh's investment and exit from Besso demonstrates the success of its strategy of investing for the long-term and working with management teams to achieve a mutually desirable exit at the optimum time. B.P. Marsh was instrumental in establishing Besso in 1995, funding a buy out from what is now the Jardine Lloyd Thompson Group, with an initial equity investment of £0.46m and further equity investment (net of redemptions) of £2.37m over the subsequent 21 years. Since the initial investment, B.P. Marsh has supported Besso's growth through a longstanding partnership and provision of working capital finance, including spearheading the buy-out of Wells Fargo in 2011 and international expansion with the opening of offices in Turkey and Brazil. B.P. Marsh will continue its joint venture alongside Besso with its investment in Sterling Insurance (PTY) Limited which will be unaffected by this transaction.
Commenting, Brian Marsh OBE, B.P. Marsh's Executive Chairman, said:
“Our investment in Besso typifies our approach – long-term, collaborative and focused on delivering highly attractive results for all stakeholders. We have stuck with Besso through many ups and downs over the course of two decades, as we believe our investments to be a true partnership with the management team or individual we back. However, our partners at Besso have now reached the stage in the development of their group for which they need financial firepower which outstrips the resources that B.P. Marsh is able to supply. Consequently, we are pleased that Besso has identified BGC as its future ongoing partner and we wish them well.”