Buyers gear up for £300m Groupama UK sale

Expectations are mounting that Groupama will soon give the green light for a sale of its UK assets.

JP Morgan is currently carrying out a strategic review of what Groupama can sell to strengthen its capital adequacy which has deteriorated because of sovereign debt holdings and decreased assets in equities.

Towergate’s private equity backers Advent are understood to be watching the situation closely.

Towergate founder Peter Cullum and former chief executive Andy Homer would be expected to help with the potential acquisition of Groupama’s UK assets, Insurance Times understands.

Advent would probably look more closely at the possibility of investing in one or all of the UK broking assets - Bollington, Lark and Carole Nash - rather than Groupama insurance.

There would probably be two sales, one for the insurance company and another for the broking arm, a source said.

French mutual Covea, which owns Swinton and MMA, is keen to expand in the UK and is also keeping a close eye on Groupama’s sale process.

Buyers had been alerted by a note from one of the major investment banks detailing Groupama’s assets, including the UK insurance company and its broking subsidiaries.

The note was sent out to gauge interest from potential buyers. It is being viewed as a ‘taster’ for when the information memorandum is formally sent out with a mandate to sell the UK.

A City source said: “I suspect it’s only a matter of time. It’s insignificant and quite easy to carve out. The only counter argument to a sale is that it may not generate a huge amount of capital.”

Another source said there was also a political dimension to the Groupama sale process.

At present, the French Government and financial regulator want Groupama to sell off assets to strengthen capital adequacy.

However, Groupama is aware that if it ever needed state support in case of further deterioration, the French government would not take kindly to supporting its foreign firms.

It makes it more likely that Groupama will look to sell foreign assets rather than domestic ones, the source said.

Finally, a trade sale to a stronger capital-buttressed insurer would placate those brokers concerned about its Standard and Poor’s financial strength rating of triple BBB.

The UK is in a more solid position than the rest of the group. Groupama’s UK business is FSA regulated, separately capitalised, with a solvency ratio of 181%.

According to Companies House, the main assets in the UK are the insurance business, called Groupama Insurance Company Limited, and the broking arm, called GUK Broking Services.

According to the 2010 accounts, Groupama Insurance Company Limited had shareholders’ equity of £193m.

GUK includes broking subsidiaries include Carole Nash, Bollington and Lark. Total equity was a £107.4m.

Once intangible assets are knocked off the business, the combined book value is around £280m for 2010. Groupama is also a majority, but not complete shareholder, in its UK broking assets.

A rough calculation means Groupama could aim to pull in, say, anywhere between £250m and £300m, from the sale on those book values.

A major drawback is that investor confidence is very fragile at present amid the tough economy and persistent worries over sovereign and bank debt.

A Groupama spokesman declined to comment.