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Analysts split over consolidation deal

Friends Provident’s 75m acquisition of Sesame has had a mixed reaction from analysts.

Opinion is split on insurers’ track records on running distribution businesses although KPMG says the move could be positive for both parties as a consolidation play.

KPMG director, strategic and commercial intelligence Jer-emy Oakley says Friends nee-ded to acquire distribution as it has no tie-ups with bancassurers while capital adequacy requirements are putting an increasing strain on many distribution models.

Oakley says: “With factory gate pricing and more onerous capital requirements, it seems the only way that firms will survive.

“This was a consolidation deal and putting the two together makes sense but it all depends on what they do with it now. Friends has a good management team and we can be confident in them.”

Oakley says the 75m that Friends paid is six and a half times less than what the business was valued at five years agree reflecting the potential future liabilities in the wide-scale status shift from appointed representatives towards direct authorisation.

Oakley says: “The price has tracked right down. Five years ago, Sesame was valued at anything up to 500m but it is a very different business to the one it was back then. This is a strategic acquisition though, based on conventional valuation. I cannot see this just being based on earnings and multipliers.”

However, one City analyst questions the logic behind the deal. He says: “I am not sure about life companies buying up distribution. Skandia bought Bankhall and neither party seems clear as to where the benefit lies to either side. I struggle to see why anyone would buy any network model any more and what the attraction is about Sesame.”

Friends Provident marketing and UK distribution managing director Simon Clamp says: “It is a big business but it makes a profit. We have paid a fair price for that business.”

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