The fourth largest private sector general insurer HDFC ERGO on Friday said it will acquire L&T General Insurance in an all-cash deal for Rs 551 crore and will retain all the employees of the latter even a sit may go for branch rationalisation post acquisition.
Once the deal goes through, it would be the first ever merger of two insurance companies in the country. HDFC ERGO operates through 108 offices with an employee strength of 2007, whereas L&T General Insurance has 28 branches with a headcount of 800.
The general insurer will retain all the employees of L&T General Insurance post acquisition, HDFC ERGO said.
“The board of HDFC ERGO General Insurance Company has approved purchase of 100% stake in L&T General Insurance Company subject to regulatory approvals,” a company statement said.
Once the approvals are in place, the acquired entity will be merged with the aquirer, it said.
The transaction has been valued at Rs 551 crore in the all-cash deal structured by Arpwood Capita, which advised HDFC ERGO. The acquisition would help the company improve its market position.
The merger process would take about 11 months, it said.
When contacted, HDFC ERGO Managing Director and Chief Executive Ritesh Kumar said, “After the completion of acquisition process, we may go for branch rationalisation… However, we will retain all the 800 employees currently working for L&T General Insurance.”
HDFC Ergo, a 51:49 joint venture between housing major HDFC and ERGO International, Germany (part of Munich Re Group), offers all lines of general insurance products, including motor, health, personal accident, home, marine, fire, aviation, liability and crop insurance.
L&T General Insurance is a wholly-owned subsidiary of engineering conglomerate, Larsen and Toubro. The six-year-old insurer is a relatively new entrant in the insurance industry.
“Considering the importance of scale in the insurance business, consolidation is inevitable. This transaction marks the beginning of this consolidation process,” said HDFC Ergo Chairman Deepak Parekh.
“The acquisition will help us further strengthen our presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders,” he added.
HDFC Ergo wrote gross premiums of Rs 3,467 crore and made a profit after tax of Rs 151 crore in FY16, whereas the gross written premium of L&T GI stood at Rs 483 crore, posting a growth of 40% over the previous financial year.
“As step 1, L&T GI will become our 100% subsidiary and then we will go for scheme of amalgamation for which we will have to go to the High Court. The acquisition will increase 15% of our topline,” Kumar said.
“The assets of L&T GI, which was currently sized at Rs 600 crore, will add to the balance sheet of HDFC ERGO post acquisition,” he added.