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  • spinvestor2003 spinvestor2003 May 5, 2012 7:26 PM Flag

    Crump Insurance

    The hurdle is pre tax as is the efficiency ratio. So the EPS accretion is likely less than 12c. More likely 8-9c imo assuming king did indeed get it at 15% pretax return. But agree CSFB is too low if they are at 4c; though I haven't read the report so unsure if they are including integration costs.

    Spin

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    • IRR should be based on after tax cash flow.

      If you take CFO Bible literally per the earnings transcript the denominator increases by 3% or $75 million of revenue while the numerator increases by 1.1% or $16 million of expense. Assuming 30% tax, pat is about 6 cents. Bible may have rounded off some so instead of .52 maybe it's .513, so I'm calling it 4 cents per qtr or 16 cents per year. This would validate King's statement.

      On the other hand the press release said, the purchase price equals 9 times ebitda or $63 million. I think is where credit suisse is coming up with a penny per quarter. However, I suspect this is before cost reductions and revenue synergies to be realized from the acquisition. Bbt insurance will be placing more business through Crump making it more profitable. Merger charge for the 2nd qtr. I think is $45 million (some is bbx).

      I would take CFO Bible at his word that the efficiency ratio will drop to .51 from the Crump acquisition, all other things being equal.

      We'll see in July.

      • 1 Reply to normlasky
      • On the IRR bring after tax, yes in deed however iirc king mentioned on a call a year or two back that his hurdle was pretax.

        I was using Bible's numbers - the Revenue and 30% margins from the transcript for the business to generate operating income = 300MM Rev x 30% life margin=90MM operating income/ 570MM investment >15% kings pretax return on clean numbers or 12% after tax return. Eps ~10c on 25% tax rate.

        I can't see your number from a business perspective - your 16c needs a margin of between 50-55% vs Bible's ~30% for this sort of business.

        Spin

 
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