LV= interview: Behind a public private equity takeover

In one of the most public takeovers of recent times, the sale of LV= to Bain Capital has provided trade and national news publications alike with plenty of headlines and readers with no end of intrigue.

International Investment recently reported (24 November) that British mutual insurer LV will be acquired using a Jersey incorporated company if members agree to the sale of the business to US private equity firm Bain Capital.

Clive Bolton, managing director of protection, savings and retirement at LV=, speaks to International Investment's sister title, Professional Adviser editor Tom Ellis, about the takeover, what is driving it and all the noise around the deal for the mutual…

A private equity takeover is bound to have an impact on any company, not least a mutual steeped in history, which by nature keeps a portion of its customers literally invested in the business.

But Bolton is keen to reassure that the private equity firm is not coming onto the scene to rock the boat: the party line is continuity. Bain Capital is arriving to continue a strategy already begun and to keep investing in it.

"We'll continue to focus on our fund range and the platforms and methods that are required to distribute those," Bolton tells Professional Adviser. "We'll continue to focus on our protection business.

"We've seen the IT investment we've made in the equity release platforming, the changes we've made in our investment business and are beginning to make in our protection [business]. You'll see protection will be a big focus for us going forward in terms of digital assets, and being easier to do business with straight-through processing."

Bain Capital is buying a company and a strategy, he restates. It's "an acceleration", not a takeover to enforce change and disruption.

Indeed, as well as the board, LV='s employees are apparently intent on supporting the continuity Bain's deal has promised to offer: the mutual's ‘employee consultative forum' has thrown its weight behind support for the private equity firm's bid above others. Chair Greg Batterbee, in a public letter to members, writes: "LV= is a significant employer in the Bournemouth, Hitchin and Exeter areas, and Bain Capital have committed to all these locations. The other bids could have resulted in large numbers of immediate job losses and closure of sites - a less than desirable outcome.

"In contrast, Bain Capital want to provide the opportunity for people to be part of a growing business."

Batterbee adds that the proposed deal with Bain Capital offers the best outcome for both employees and members and would "secure a bright future for our well-loved brand." As such, he concludes in the letter, he encourages members to vote in favour of the takeover.

Not all continuity

While LV= and Bain Capital are promising more of the same - not just a continuation of strategy but more customers and more investment into the company - there are avenues the firm could yet go down. Many rival mutual and life companies have tried to put distance between those old-fashioned labels by investing money in technology, particularly adviser investment platforms.

The list to have made the transition away from the stuffy life company or mutual label, or at least tried to, is long: Aegon, Aviva, Abrdn (it even gave itself a techy name), Royal London, L&G, Axa, Quilter, and more.

Bolton is not ruling out a similar move for LV=. In fact, he hints that could be one of the next steps for the company. Perhaps not into the advised wealth platform space, but certainly in terms of upgrading technology, which Bolton admits has not been kept particularly up-to-date compared to rivals.

The idea marries up with its desire to increase its presence in the protection arena, which grows increasingly technological, where LV= thinks it will grow its customer numbers outright. It is already a big player in the protection space and Bolton says it is willing to invest in the business to boost its presence.

The protection side is not the only part of its business demanding the need for technology advancements - the firm's smooth managed funds require better platforms to drive distribution too.

Out in the open

The takeover of LV= is certainly no secret. Neither are the proposals behind it or many of the mechanics of the deal. The company has been more transparent than most in its bid to win over members ahead of the crucial vote for its future on 10 December.

And while the takeover has been somewhat played out in public, the trend of private equity money flooding into the wealth management, advice and life insurance space has been transparent for all to see too.

James Hay's parent company, Nucleus, Novia, AFH, Progeny, Skerritts, Parmenion, True Potential - it's another long list that could go on. Bain Capital is not a lone wolf in its efforts to get stuck into the UK wealth space, there are plenty of other private equity firms that have done similar.

None have quite had their dirty laundry thrown out into the open in such a dramatic way, however. Many of Bain Capital's peers have completed their deals smoothly and out of public sight. Intimate details of the takeover, what it will mean for the business, its members, future plans and all the rest have been published by both LV= and Bain Capital to try and allay fears of members and push the deal through.

‘Destabilising'

One reason the takeover has been so public has been because of speculation built up by Royal London and its reported attempts at a last-minute intervention into the Bain Capital takeover. After speculation rose in the press over an apparent email from Royal London CEO Barry O'Dwyer to LV= counterpart Mark Hartigan just a few weeks ago, the latter moved to quash rumours and set out the firm's position as the Bain Capital vote nears.

Indeed, an LV= spokesperson tells Professional Adviser of Royal London's recent advances: "They were part and parcel of if the [original bidding] process. We had 12 bids and they didn't come up with a better offer than Bain and they had plenty of time to do that. We were quite surprised that they chose to make some vague comments through the media in the middle of our in the middle of our voting process.

"It is destabilising for our members and unwanted, but they had plenty of time to come up with a best and final offer and they didn't come up with one that was better than the offer that we that we've got from Bain. So that's why we proceeded with that one."

LV= chairman Alan Cook has made similarly firm comments in recent weeks on the last-minute and public approaches from its rival mutual: "The Board of LV= is clear that at no point have any of Royal London's proposals included an offer for membership rights or continuation of mutuality for LV= members, contrary to media speculation. Given this context, the Board of LV= believes it is unfair and misleading to characterise any proposal from Royal London as preserving mutuality or offering a real mutual alternative.

"We are also surprised and disappointed by the timing of Royal London's intervention, which comes more than a year after we terminated our confidential discussions and is seeking to destabilise the conclusions of our comprehensive strategic review, in close proximity to what is a very important vote for our members."

Royal London's acquisitions of other mutuals in recent times, including the likes of Royal Liver and Police Mutual, did not offer membership rights to members of those mutuals, a point LV= emphasises. Royal London has tried to persuade LV= members it will be a better option for them than Bain Capital, although it has made little official comment, unlike the two companies who are less than two weeks away from securing a deal.

Even members of parliament have reportedly got involved: the All-Party Parliamentary Group for Mutual Gareth Thomas requested the FCA to reveal details of the negotiations to find out whether Royal London had offered the best deal for its rival mutual. The FCA had previously said it had no objections with the takeover.

To complicate matters further, as with anything over the past 20 months, events have taken place with the coronavirus pandemic as the backdrop. Business meetings, discussions and negotiations that usually take place in-person, where one can see the whites of another's eyes, have taken place over all manner of video communication software. The Bain Capital and LV= deal is no different and important parts have taken place through a computer screen.

"It was slightly unusual to actually go through the entire process of selecting Bain Capital without actually meeting the people that we were talking to," says Bolton. "I know everybody has a story about they've done something that they'd normally do face-to-fact but, actually, through that process we had to vote remotely. But it all worked.

"Obviously, we've talked to a number of different people and eventually Bain Capital was selected."

The noise around the deal, at the end of the day, is just that. If the Bain Capital bid is accepted and goes through then all of the media speculation and publicly-displayed dirty laundry will become somewhat irrelevant. Then it will be all about the business, the strategy, and whether the private equity firm sticks to its promises.

As Bolton says, LV= must continue to invest in the strategy laid out bare: "We're now a fund provider, a protection provider and we're in equity release. We see those funds, later life and protection as the three core pillars [of LV=]."