Sanlam looks for ‘bolt-on’ acquisitions to expand

Handover to Ian Kirk in place – Johan van Zyl.

JOHANNESBURG – Sanlam, which at December 31 had R3.3 billion earmarked for further expansion and diversification, says it will look at doing a number of smaller, bolt-on transactions this year. 

In an interview with Moneyweb after the group issued results for the year to December 31, Sanlam CEO, Johan van Zyl (pictured) said the R3.3 billion in capital would be invested into its fast-growing existing businesses and “one or two smaller acquisitions”.

In Kenya, where Sanlam had a life insurance and asset management business, it was looking at opportunities in the general insurance space, Van Zyl said. These deals would be “smaller, bolt-on things”, he noted, of well under R100 million each. “None of those deals are massive or transformational,” Van Zyl said.

In the period under review, Sanlam Emerging Markets (SEM) increased earnings 23% to R1.2 billion, making a nice contribution to the group’s normalised headline earnings of R8.3 billion – up 3% on the previous year.

Sanlam’s net operating profit from financial services increased 27% to R6.9 billion.  

If regulations in India change, Van Zyl said Sanlam will increase its 26% stake in its insurance businesses there, majority owned by Shriram Capital, to 49%. This would take care of around R600 million to R700 million of the R3.3 billion, Van Zyl said.

About a quarter of Sanlam’s profits are now derived outside of South Africa, he noted. Ten percent come from Europe and the United Kingdom (UK) and 15% from SEM, which includes India, Malaysia and Africa.

“Six years ago this [profit contribution] was close to zero, now it’s at 25%. We hope in the next year or two it will be about a third of our profits,” Van Zyl said, noting that buying businesses in the rest of Africa was becoming more competitive, with heightened interest from both South African and foreign buyers, including American hedge funds and private equity firms. “That’s upped the prices quite a bit for us,” Van Zyl said.

In South Africa, Sanlam has spent some R700 million (of the R3.3 billion) acquiring a 30% stake in Afrocentric Health, as part of bulking up its healthcare offering. “This is a major achievement for the insurer, which has battled to play a notable role in the health administration sector since its return seven years ago,” according to a statement from Medscheme, an Afrocentric subsidiary.

“We have a complete blind spot there [in the healthcare arena], where Discovery and MMI are doing well,” Van Zyl conceded. 

Handover on track

Van Zyl said that Ian Kirk – former CEO of the group’s general insurer, Santam and now deputy group chief executive of Sanlam – was currently focusing on getting to know and understand Sanlam Personal Finance (SPF). SPF is responsible for half of the group’s profits and boasted a 19% rise in earnings for the full year to R3.5 billion.

“Sanlam Personal Finance achieved strong growth for a largely mature business,” Sanlam said in its earnings statement. SPF achieved overall new business growth of 10%, driven by strong single premium sales and a satisfactory increase in endowment savings and retirement annuity recurring premium volumes.   

Lizé Lambrechts, who headed SPF from 2002 until the end of last year when she took over as Santam CEO, has yet to be replaced. Van Zyl said SPF should have a new CEO by the middle of the year. “We have very good internal people. We always look and compare external people to those that we have available internally… [but] we have excellent people internally,” Van Zyl said. 

Santam, which issued results on Monday, more than doubled its earnings to R801 million, due to a significantly better underwriting and claims experience in its crop and motor business.

Van Zyl said there was a fair amount of activity to ensure his handover of the company’s top position, when his retirement comes round at the end of the year, was adequately structured. “Our plans are in place,” Van Zyl said, noting these would be presented to the board in August.

Moving into 2015, Sanlam would “open the taps where there are opportunity and close the taps where there are headwinds,” Van Zyl commented. India in particular would be a focus as Sanlam looked to increase its stake in Shriram’s insurance businesses. In South Africa, where intense competition put pressure on returns, Sanlam would pursue opportunities where they arose, Van Zyl said.

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