The Goldman Sachs Group, Inc. (GS) is set to become a major stakeholder in Hastings, one of Britain's emerging insurance companies. Goldman’s private equity division – GS Capital Partners – will buy a 50% stake worth roughly £150 million ($240 million) in Hastings. Following the acquisition, the British insurance company will be worth roughly £700 million ($1.12 billion).
The deal, which will be Goldman’s first U.K. private equity deal since 2008, is expected to be financed through a combination of equity and debt. The closure of the deal is still subject to regulatory approval. Goldman’s agreement with Hastings comes after the British insurer decided to remain private, unlike peers such as Direct Line Group and Esure Group.
Sussex-based Hastings was initially a part of Insurance Australia Group until it underwent a management buyout in 2009. Since then, it has been one of U.K.’s fastest growing insurance companies. In the first half of 2013, the insurance firm reported adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) of £83.3 million. Therefore, Goldman’s purchase price is roughly 8.4 times the adjusted EBITDA of Hastings.
Hastings presently has an employee base of 1,500 and the company’s shareholders comprise both management and almost 80% of the employees. These shareholders will retain the residual 50% stake in the business after the deal with Goldman is completed.
Of late, the private equity business has become less lucrative for banks due to future regulations that will likely limit proprietary trading and investment activities of banks. As per the Volcker Rule (a provision of the 2010 Dodd-Frank law), a company is restricted from investing more than 3% of the private equity funds raised or 3% of the lender’s Tier 1 capital.
This provision is expected to adversely affect the future of the bank-owned private-equity units, making them less attractive. Therefore, Goldman is seeking opportunities to invest overseas in order to escape the stringent regulatory landscape in the U.S.
Goldman Sachs currently carries a Zacks Rank #3 (Hold). Some better-performing banks include Banc of California, Inc. (BANC), BofI Holding, Inc. (BOFI) and Glacier Bancorp Inc. (GBCI). All these stocks carry a Zacks Rank #1 (Strong Buy).