What Property Or Services Did Allstate Furnish?

Allstate(ALL 0.50%) is one of the largest life insurance companies in the world, and information technology simply announced a splashy acquisition that will make it even larger. The company is acquiring National General Holdings(NGHC) for $four billion, or almost $34.50 per share.

This acquisition will expand Allstate's reach in the contained agent channel for auto and homeowner's insurance, and increase Allstate'south marketplace share in personal belongings-liability insurance.

Is bigger better in this case?

Allstate's $4 billion acquisition

Like Allstate, National General is a property, auto, and life insurance visitor. National General has a much smaller insurance operation, but it is the second-largest U.S. lender-placed insurance provider and has one of the largest networks of contained agents to sell its products.

Allstate will be acquiring 100% of National General in an all-cash deal. The acquisition totals a sizable $4 billion, which is a multiple of 11.9 times National General's earnings.

The bargain was structured so that National General shareholders will receive $32 per share in cash and be paid a closing dividend of upward to $2.50 per share based on the company'south fiscal operation in 2020. If National General falls short of its earnings growth expectations, the closing dividend could be reduced to $one.50 per share. This is an interesting bargain structure that creates a skilful incentive for both the buyer (to shut the deal) and the seller (to keep up fiscal performance).

Allstate intends to finance the deal with greenbacks on hand. The transaction will need to be approved by National Full general'southward shareholders and is expected to close by early 2021.

A man holding an umbrella protecting a car, house, and family

Image Source: Getty Images.

All about growth

Why is Allstate acquiring National Full general? It has a lot to practice with National Full general's relationship with contained insurance agents. Today, Allstate primarily uses its ain salesforce to distribute its product, merely gaining amend access to independent agents will help Allstate capture additional segments of the market where there are no current Allstate agents. The acquisition would establish the combined company as a top-five independent agent insurance carrier.

There are other benefits to the conquering. National Full general has a strong position in higher-risk auto insurance policies and lender-placed policies, which volition be nice boosts to Allstate'due south overall product portfolio.

Most importantly, this bargain is about growth. The COVID-xix pandemic has been tough on insurance companies like Allstate. People are driving less, resulting in fewer auto policies being sold. The company reported its sales were down 8.3% when it reported its first quarter in 2020.

Acquiring National General should aid shore up revenue growth and expand Allstate's reach with independent agents. The deal is besides expected to generate cost synergies, which should be a nice kicker to the bottom line.

Moving into the big leagues

Allstate is already a fairly large insurance visitor, but calculation National General volition eternalize this position. The deal will catapult Allstate to being a summit-five independent agent insurance carrier, and should upshot in meaningful revenue and earnings growth.

Despite the COVID-19 pandemic, Allstate is making interesting strategic moves that could benefit it for years to come.