Quick Pitch: AUB Group (AUB:AX)

Potential Buyout: 16% Upside (at A$38.73)

This is a potential takeover in the making. While it remains at a non-binding stage, several elements make it fairly interesting:

• The bidder is a very large private equity firm that, after six months of discussions, has recently made two takeover offers. The spread to the latest bid stands at 16%;
• After a month of exclusive due diligence, the buyer has reconfirmed its intent to proceed with the buyout;
• In an unusual turn of events, another major PE firm has approached the buyer and offered to form a merger consortium. The possibility to share the financial commitment improves the odds that the takeover deal will be reached;
• The offer price appears fair and is likely to be accepted by the target’s management;
• With downside to pre-announcement levels of around 17%, the market is effectively pricing in only a 50% chance of success. That seems too low for this kind of setup.

AUB Group is a roll-up of insurance brokerages (i.e., middlemen between insurance providers and customers). The company focuses on Australia and New Zealand but also operates a sizable international segment based in the UK. Revenues are generated primarily from commissions and fees, which are usually percentages of the insurance premiums. It’s a good business with sticky clients and very high margins (35%+ EBIT).

In late September, AUB received a takeover bid from EQT at A$45/share. This followed an earlier bid of $43/share in mid-September. Exclusivity and due diligence started on October 8. All of this happened in private and was publicly announced only two weeks ago. AFR also reported that talks between EQT and AUB had been ongoing for six to seven months already.

Last week, EQT reconfirmed intention to proceed with the offer. A couple of days later, the buyer announced that it had been approached by CVC Asia Pacific, which offered to form a consortium to acquire AUB. EQT appears to be taking this proposal seriously. Overall, the update sounded quite upbeat about the prospects of an eventual buyout:

Under the Consortium Proposal, CVC funds and EQT funds would jointly own AUB (along with any co-investors). EQT has confirmed that the Consortium Proposal would remain at a price of A$45.00 per share. EQT has also requested an additional two week extension to the exclusivity period to enable completion of due diligence and to allow the parties to negotiate and finalise definitive transaction documents in respect of the Consortium Proposal.

With exclusivity set to expire on December 4, there isn’t much waiting left. AUB appears to be a willing seller. Given how things have unfolded so far, the odds of the parties signing binding agreements look quite high. The spread should narrow substantially in that case.

The buyout interest for AUB comes amid increased consolidation in the insurance brokerage space, with PE firms and strategic players scooping up brokers in the US and Australia. Examples of large or sizable acquisitions include AUB’s peer PSI:AX (acquired last year), AssuredPartners (last year), Accession Risk Management Group (this year) and Keystone Agency Partners (this year). In Australia, the consolidation has apparently been triggered by softening insurance premiums since 2024, following a prolonged period of premium increases driven by extreme weather events, inflationary pressures, and other factors. While it is not yet clear when the cycle will turn again, the buyers may see this as a good time to pursue somewhat opportunistic deals.

The offer seems fair, coming in at all-time highs and valuing the target at 14.5x FY25 EBITDA, 17.4x EBIT and 26.2x P/E. Meanwhile:

• PSI was acquired last year at 20.8x TTM EBITDA and 28.1x P/E. However, PSI was acquired by a strategic buyer, which likely was able to pay a higher price due to higher synergies. Assuming the buyer was able to eliminate PSI’s administrative expenses in FY24, the implied EBITDA multiple would be 13.8x. The overall valuations in the industry were also higher last year.
• The buyout comes at a meaningful premium to valuations at which AUB itself has been rolling up other fairly large businesses. For example, it paid 12x EBITDA for Tysers in 2022 (£500m). It also paid 13x EBIT (EBITDA is not provided, but the multiple would likely be c. 3 turns lower) for a 70% stake in Pacific Indemnity in 2024 (A$192m valuation).
• During FY19–FY25, AUB has mostly traded in the significantly lower 9x–12x EBITDA range.
• Another peer, SDF, is currently trading at 8.6x FY25 EBITDA and 18x P/E multiples. SDF and AUB have historically traded at similar multiples. The recent divergence appears to have been driven partially by a management shake-up at SDF, with the chairman resigning in August and the CEO subsequently stepping down in late October. At pre-announcement levels, AUB would trade broadly in line with its peer, so the higher multiples seem to simply represent the takeover premium.

The spread exists because many Australian arbitrage investors have been burned by EQT before. In recent years, it has walked away from two non-binding bids: IRE and VOC. In 2021, EQT made three successive offers for IRE but ultimately withdrew after due diligence, saying it had not “come across any red flags during our due diligence but were not able to sufficiently confirm our investment hypothesis.” Likewise, in 2019, EQT made a bid for VOC, gained due diligence access, and then walked away soon after.

That said, the situation with AUB looks more promising, given the lengthy discussions, the reiterated intention to proceed with the buyout/due diligence, and especially another major PE firm (CVC) potentially joining the party. To be fair, the IRE and VOC cases are exceptions rather than the rule. EQT is a massive firm that has completed many sizable acquisitions since entering Australia in 2020. Its buyouts in Australia so far total over A$10bn, including VetPartners, Potentia’s Newbook, Fitness Passport, and PageUp.

At a quick glance, shareholder pushback seems unlikely. No shareholders have voiced any opposition so far. Analyst comments, however, have been somewhat mixed, and slightly leaning toward the view that a small bump might be needed (see here and here). However, management appears satisfied with the current offer, having granted due diligence access and recently approved CVC’s potential entry into the consortium without any change to the bid price. The largest non-passive shareholder on the register is First Sentier, with a 7% stake. AUB’s management owns a minimal stake of less than 1%.

There’s still a chance the final offer could come in slightly higher to firmly secure shareholder support. Nonetheless, the main catalyst here should be the announcement of a binding offer, which is likely to cause the spread to narrow.

While I do find this setup quite interesting, it’s important to note that AUB is a sizable company with a market cap of A$4bn and is closely followed by local analysts and media. The odds are high that the market is pricing this situation correctly, and I might be missing something else that explains the current skepticism.

If the transaction falls through, the downside to pre-announcement levels is 17%. Peer SDF’s share price has fallen 10% since the announcement, but that seems to be driven by company-specific issues – news that its CEO temporarily resigned following “a workplace complaint made against him.” AUB won’t release its H1 FY26 results until next year, so there are unlikely to be any material near-term developments unrelated to the takeover process.