A shopping spree worth £1bn might sound like fun, but for Old Mutual FD Julian Roberts it must be something of a headache. Far from speeding through the aisles in Supermarket Sweep style, Roberts will be doing some serious number crunching in his company’s pursuit of a British life insurer.
With the company’s detailed shopping list in hand, he will be a discerning shopper. The target is a life company that has outsourced neither its administration nor fund management functions. That is because Old Mutual’s ace will be its ability to outsource administration itself – to the company’s South African base.
In January, Roberts told Accountancy Age that the ‘rainbow nation’ was second only to India as a cheap place to outsource to – but that it trumped the former with its life company experience. The fund management operation, meanwhile, would be absorbed into Old Mutual’s asset management arm.
Roberts believes he is well qualified to handle the transaction, particularly thanks to his experience as chief financial officer of Aon Corporation, which he says taught him ‘how to value companies, how to buy companies, how to integrate companies’.
A trained chartered accountant, he qualified with Price Waterhouse and went on to serve as group financial controller of Stewart Wrightson before joining Aon. Between there and Old Mutual he picked up a good grounding in insurance with a job as group finance director of Sun Life and Provincial Holdings.
This weekend, the 47-year-old celebrates four years in his current job, which he took over from ICAEW chief executive Eric Anstee.
He may be glad of an excuse to get the champagne flowing after last month’s interim results, which must have tasted a little flat (see box).
The attempt to buy a UK life insurer marks a major step up in Old Mutual’s interests here. The company only established a beachhead as recently as 1997 when it acquired a UK stockbroker and investment manager. It listed on the LSE after de-mutualisation in 1999 but still draws only around 8% of its profits here compared to 70% in South Africa and 20% in the US.
Jim Sutcliffe, Old Mutual’s chief executive officer, revealed that it is prepared to spend big, saying: ‘The amount depends on the characteristics of the target, but if you look at our bank arrangements and funding facilities, we have something in the order of up to a billion pounds in cash.’
But Roberts is not alone in prowling the aisles for a closed life insurer. Old Mutual was previously linked with several businesses, including Royal & SunAlliance’s life arm. That was snapped up by the Resolution Life Group, though Roberts later claimed it had not been a good fit anyway.
The company’s desire to balance its business in South Africa and the US with a larger one in the UK has become a mainstay of its strategy and with limited opportunities to buy, the pressure is on to find a good match. Roberts knows that unless he is able to wield his shopping trolley with skill, the cupboard may end up bare.
CUTTING A MEDIOCRE FIGURE
While Old Mutual looks for a new company to buy, the latest figures for its existing business produced a mixed bag.
For the six months ending 30 June 2004, pre-tax profit slumped from £3.79m to a borderline £2m, and the company made a loss of £62m after tax and deductions for minority interests are included.
That was attributed to short-term market movements in the value of US life’s bond portfolio, and the impact of the $90m (£49m) regulatory settlement at its US asset management affiliate Pilgrim Baxter.
On the upside, adjusted operating profits rose 7% to £422m, and the interim dividend rose for the first time in three years. Adjusted operating earnings per share outstripped expectations by rising 21% to 6.8p thanks to its strong growth in the US.
Old Mutual, of course, is no longer mutual after its floatation in 1999, and the next set of results will be boosted by a windfall from members who failed to pick up free shares by July’s deadline.
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