The next big battle with private equity jackals now that Morrisons has fallen into their hands will be fought over one of the UK’s biggest mutual insurers.
Bosses at LV, formerly the venerable Liverpool Victoria, are intent on selling the historic business to US buyout barons Bain Capital in a £530million deal. Their determination comes in the teeth of opposition from MPs and other critics.
Chief executive Mark Hartigan has been trying for more than a year to persuade regulators – and the 1.16m policyholders who actually own the company – to back his potentially self-enriching plans.
Break from the past: Bosses at LV, formerly the venerable Liverpool Victoria, are intent on selling the historic business to US buyout barons Bain Capital in a £530m deal
He hopes a deal with Bain would put him in line for a lucrative equity stake that would pay out millions if he squeezes profits out of LV.
But critics fear the deal, which would bring an end to mutual status for one of the country’s best-loved financial firms, would be poor value for members, put jobs at risk and lead to a reduction in consumer choice.
A sale has to be approved by the regulators, and by the insurer’s 1.16m policyholder members, who together own the company.
At least 75 per cent of those who vote must back the deal and there needs to be a 50 per cent turnout, making it imperative that every policyholder exercises their democratic responsibility if the deal is to be halted.
The question is whether a sale to private equity is really in their best interest, particularly since Hartigan turned down the opportunity to merge with a fellow mutual, Royal London.
The bosses of Royal London were bemused and believe LV has made a poor choice for its members.
Hartigan argues jobs would have been lost in a tie up with Royal London – though private equity takeovers often result in swingeing cuts.
So will LV members be offered a good price for surrendering their ownership, along with the prospect of solid future returns?
Or will they be sold down the river? At this stage it is unclear because after more than ten months, members still do not know exactly what offer will be put before them for a vote and are therefore in limbo.
LV’s board, along with its suitors at Bain, have been trying to thrash out the nitty gritty of the deal with regulators at the Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA).
Assuming they do not throw out the deal, the outcome of these talks will determine exactly how much each of LV’s policyholders will get from Bain in return for giving up their stake in the firm.
LV has guided that any pay-out will only be ‘modest’.
The takeover is particularly crucial for the company’s 340,000 with-profits policyholders.
They took out savings plans in the expectation they were with a company offering very long-term stability on policies lasting 25 years or more, only to be asked to sign their savings over to private equity, notorious for its short-termism.
They are being promised a higher pay-out by Bain when their policies mature, but detail is thin on the ground.
One inescapable fact, though, is that under Bain, the insurer will no longer be owned by its members but by a profit-hungry private equity firm.
It is a far cry from LV’s roots.
As Liverpool Victoria, it was founded in 1843 by William Fenton to give poorer residents of that a chance to hold a funeral for their loved ones.
Staff would go door-to-door collecting penny premiums from their customers, and the society would then cover the costs of a decent burial.
Its mutual status meant that any profits were shared out among its member-owners – there were no City shareholders demanding that the company squeeze more money out of policyholders to boost their returns.
From penny policies to billions
William Fenton founded Liverpool Victoria to give poorer residents of Liverpool a chance to hold a funeral for loved ones
Founded in 1843 by William Fenton, Liverpool Victoria – as LV was once known – was formed to give poorer residents of Liverpool a chance to hold a funeral for their loved ones.
Staff would go door-to-door in the city collecting penny premiums from their customers, and the society would then cover the costs of a decent burial.
By 1930, LV was looking after more than 13m policies. It moved its head office to the grand Victoria House in London’s Bloomsbury Square, where it hosted the World Snooker Championships in 1970.
And in 1996, when LV acquired the Frizzell Group, the business moved to Bournemouth.
This deal allowed it to branch out from life insurance into a whole new area – general insurance, which included policies such as home and car cover. But since LV sold its general insurance arm to Allianz for £1.3billion in 2019, its size has been drastically scaled back.
In 2020, just months after Mark Hartigan joined as chief executive, LV revealed it was in exclusive takeover talks with Bain Capital – snubbing a rival offer from fellow mutual Royal London.
Every choice LV made could be taken with the best interests of its customers and members at heart. In stark contrast, private equity has a reputation for brutal money-making tactics.
Hartigan, who received pay and bonuses of more than £1.2million in 2020, joined LV as chief executive in January 2020 just months before the deal was announced.
He is adamant that the sale to Bain is the best way forward for LV’s members.
Unveiling the deal last December, he said: ‘The partnership with Bain Capital recognises the opportunity to further invest to develop LV at a time when it is well positioned, growing market share, expanding its products and trading resiliently, despite the pandemic.
‘While our corporate structure will change, our culture and values remain the same.’
He and chairman Alan Cook argue that as a mutual, it is hard for LV to compete against large rivals which have access to large amounts of capital.
It is a staggering volte face. Just months before, Cook had lauded the insurer’s status as a mutual, saying: ‘The concept of mutuality and importance of membership is at the heart of LV.’
Despite his earlier passionate support of mutuality, Cook argued that because of the need for capital to invest, this was no longer an option for LV and that its only choice was to be taken over.
LV received 12 formal offers of which Bain was judged to be the best. For a number of MPs and supporters of mutuals, however, the proposed deal has created huge concern. Observers – and no doubt policyholders – were left baffled as to LV’s sudden need for capital. Some have cast doubt on the benefits for members.
Gareth Thomas, a Labour MP who chairs the All Party Parliamentary Group (APPG) on mutuals, said: ‘If the demutualisation of Liverpool Victoria goes ahead, it will see a controversial US private equity giant taking ownership of a British customer-owned business with considerable financial assets.
‘It is easy to see how the chairman and chief executive of Liverpool Victoria might benefit but as demutualisations usually lead to worse customer service and lower pay-outs, it’s far from clear how anyone else will benefit.’
One concern is that in a debt-financed private equity deal, the covenant with policyholders may be weakened.
Martin Shaw, an insurance veteran who is chief executive of the Association of Financial Mutuals, said customers in similar deals in the past such as Pearl Assurance had fared badly.
‘In the same way as the members of LV are being promised now, the customers of those past deals were promised that the business would be more secure and have greater access to capital. That clearly wasn’t the case.
‘The board of LV has yet to explain how it will avoid the same fate as all those others.’
Shaw added that handing over reserves which had been built up at LV for hundreds of years to a private equity firm ‘seems wrong’.
Ultimately, it is LV’s members and policyholders who will have the final say.
They should think long and hard before surrendering their company to predators.