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Surprise AUB Tysers retail move gains early positive response

AUB Group may not have intended to retain full ownership of the Tysers retail business, but much has changed in the past year, and the decision to ditch a joint venture plan has gained a cautiously positive reception. 
The proposed joint venture with PSC Insurance Group, which already has UK retail operations, aimed to reduce risks and calm any investor jitters about AUB’s $880 million landmark international expansion, which was mainly driven by the benefits of Tysers Lloyd’s wholesale operations. 
But joint ventures present their own limitations and uncertainties, the performance of Tysers since the deal was announced has been favourable and market conditions have proved supportive. 
“It’s not something we had been focused on, but keeping the retail business under full ownership does make sense,” a Morningstar research note says. 
“It gives AUB management the opportunity to try and cross-sell with its wholesale broking business. It also gives AUB discretion on future bolt-on acquisitions. PSC already owning its own UK wholesale and retail broking businesses would have meant conflicting interests.” 
JP Morgan says that funding conditions and investor acceptance of AUB keeping the entire retail business is better now than when the deal was announced in May last year. 
Tysers appears to be “going OK” standalone, there are material synergy prospects going forward in Tysers and in the agencies space, and while AUB will have to spend resources “managing a small, arguably sub-scale business overseas” the company has indicated it would like to grow further in the market, it says. 
“We continue to like AUB, noting cyclical tailwinds from rates, and ability to raise margin through strategically targeted mergers,” JP Morgan says. 
AUB CEO Mike Emmett says the joint venture deal was crafted to provide a balance of risk and return to shareholders at a time when Europe faced “Russia rolling tanks onto Ukraine’s front lawn”, while it was also in the context of possible investor caution due to past problematic Australian company offshore moves. 
But the company was always positive about the potential offered by the Tysers retail business and says it is a “high performing opportunity” that it didn’t want to completely exit. At the same time, since the time of the original announcement on May 9 last year, AUB’s shares have rallied. The stock closed at $19.73 on May 10 last year, while it ended last week at $27.38. 
Mr Emmett says AUB will look at potential bolt-on opportunities to expand the UK retail operations, which have been split from the Tysers wholesale side. The business will operate as a separate legal entity, with its own board, which includes Mr Emmett. 
“Tysers retail is a mid-sized broking group,” Mr Emmett told analysts on Thursday. “They have the right scale, what they lack is greater geographic distribution, and so the opportunities are for us to effectively buy branch bolt-ons that match their product and customer mix.” 
The business tends to have a lot of high net-worth customers and specialty areas around certain industries in the SME and mid-market space. It was outlined at the time of acquisition that it had four branches in central and south-east England. 
The original plan for the joint venture was entered into through a non-binding memorandum of understanding between AUB and PSC. The final agreement was to contain agreed exit rights and was subject to board approvals, due diligence, separation planning, regulatory and licensing approvals and documentation. 
Mr Emmett says PSC “were fantastic” in the course of the negotiations but ultimately the parties were unable to reach an outcome aligning to each group’s strategic objectives.  
PSC ultimately wanted to gain full control, but AUB was unwilling to completely relinquish and is now happier to have the entire business remain within its ownership. Analysts will be closely watching what happens from here and how management resources are spread, but AUB is buoyant. 
“Tysers UK retail is a highly attractive business with meaningful scale, deep client relationships and strong organic and inorganic growth potential,” Mr Emmett said. “Retaining this also results in strong strategic alignment with the Tysers wholesale business and the rest of the AUB Group.”