ANALYSTS are projecting a smooth process of transfer to take place as Sagicor Group Jamaica (SGJ) seeks to acquire Alliance Financial Services Limited (AFSL). Sagicor announced on Wednesday that it had entered into a definitive agreement for the purchase of 100 per cent of the shares in the AFSL. The agreed purchasing price was, however, not disclosed.
An analyst attached to one of the big four accounting firms, who commented but did not want his name used, said about the transaction, “They will need FSC (Financial Services Commission) approval and the BOJ (Bank of Jamaica) depending on the licences involved; and they only disclosed the transaction because JSE (Jamaica Stock Exchange) rules requires same, but the transaction is not closed.” He noted that the due diligence process will also precede the securing of approvals.
However, a more bullish outlook came from Dawkins Brown, who is the executive chairman of accounting and auditing firm Dawgen Global, a company domiciled in Kingston. Brown told the Jamaica Observer, “In corporate finance, mergers and acquisitions are transactions in which the ownership of companies, other business organisations, or their operating units are transferred or consolidated with other entities. This is a normal course of business.”
Brown, in reference to the fact that some of the target company's directors are embroiled in a legal challenge, said, “Companies are separate from their owners and have perpetual existence with ownership changing over time. I don't think this transaction is different. The regulators will conduct their review of the management team and responsible officers and new owners and ensure that the operating procedure comply with their respective rules.”
Directors in AFSL's and its sister companies, Alliance Finance Limited and Alliance Investment Management Limited, Peter Chin and Vice-President Robert Chin were charged on December 2, 2021 with certain breaches of the Bank of Jamaica Act, the Banking Services Act and the Proceeds of Crime Act, by the Financial Investigations Division of the Ministry of Finance & the Public Service.
Brown expounded, “In analysing the proposed acquisition, it is important to acknowledge that this transaction is permitted under the Banking Services Act which deals with holding companies. Financial holding companies in Jamaica such as Sagicor are allowed to own commercial banks, insurance companies and investment arms and other business-related entities. They can also hold interest in other financial institutions.”
The target company is estimated to have held around 10 per cent of the remittance market, and more of the cambio trade in Jamaica. Remittance flows to Jamaica were $3.5 billion in 2021, rising from $2.9 billion the year before.
Details of the AFSL's operations were shared in a prospectus issued in December 2020, ahead of an attempt at an initial public offering. In a deal brokered by JMMB Securities Limited – a securities dealer – AFSL had hoped to raise in the region of $1.9 billion and list on the Main Market of the Jamaica Stock Exchange.
According to the prospectus, Alliance Financial Services Limited, for the year ended September 30, 2020, had revenues of $1.47 billion on which it made net profit of $709.3 million. This compared to revenue of $1.67 billion in September 2019, on which net profit was $782.68 million.
The company, which was originally incorporated in 1996 as Alliance Capital Limited, is a licensed securities dealer that offers asset management, securities trading and financial advisory services.
In 1996, Peter and Robert Chin, the founders, began establishing what would become several companies under the “Alliance” brand.
The company, with head office at 7 Belmont Road in Kingston, had four branches including one in Portmore Mall in St Catherine. The other branches were located in Liguanea, St Andrew; Mandeville, Manchester and May Pen, Clarendon.
It also had a subagent network numbering 66, distributing remittances under the MoneyGram brand as outlined in the prospectus.
In 2004, Alliance Financial Services Limited was incorporated to take over the cambio services business that was then being operated by Alliance Investment Management Limited.
Alliance Financial Services Limited issued a prepaid Mastercard to its remittance customers, allowing them to load remittance proceeds to the card. Up to December 2020, the company has issued in excess of 29,000 cards with over $1.0 billion has been loaded to the issued cards.
During that same year, Alliance Financial Services Limited was also issued with a licence by the BOJ to engage in remittance business and began its operations as a primary agent of MoneyGram Payment Systems, an international money transfer service provider.
In the prospectus, directors outlined that during the period 2016 to 2019, the company achieved a compound annual growth rate (CAGR) in revenues of 11.60 per cent , while net profit during the same period grew at a CAGR of 38.93 per cent.
The company's return on average equity (ROAE) also improved from 49.38 per cent in 2016 to 54.80 per cent in 2019.
The directors said that due to the effects of the novel coronavirus pandemic on business and tourism activity, the company's revenues and profits declined by 12.15 per cent and 9.38 per cent respectively in FY2020 compared to FY2019.
It was expected that the company would return to a growth trajectory after the effects of the pandemic have abated.
However, in late December 2020 and then in another on January 28, 2021, directors stated that the IPO was suspended and the closing date extended “until further notice.”
Management said that directors of the selling shareholders “were made aware of a matter relating to a separate entity in which they are connected parties.”
Brown told Caribbean Business Report, “It is clear that Sagicor sees value in Alliance. A company's value might include an analysis of the company's management, its capital structure, its future earnings prospects or the market value of its assets.
“From review it is clear that Alliance's customer base and offerings were very appealing to the marketplace. This will allow Sagicor to immediately capitalise on those business segment opportunities.”
The analyst concluded, “Overall I don't see any serious challenges, as it seems the AFSL owners and Sagicor have arrived at an agreement and they are pursuing the normal regulatory approval process which is common with all acquisitions of financial service operators.”
Sagicor indicates that it has already approached the central bank for cambio and remittance licences. Information from the Jamaica Money Remitters Association is that each agent location must be approved, and the time for approval ranges between 90 days to six months as the BOJ does its checks.
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