Cinven hands Phoenix a 6.7 times return

The European buyout firm has bought a UK pensions annuity business from Phoenix Equity Partner, banking on strong growth rather than leverage to generate a return.

Cinven, a European private equity firm, is buying Partnership Assurance, a UK specialist provider of retirement solutions, from Phoenix Equity Partners, for a total consideration of around €200 million.

The deal has secured Phoenix a 6.7x multiple or an IRR of 106 percent in two years.

Partnership Assurance provides impaired and enhanced annuities, long-term care plans and life cover. 

Peter Catterall, a partner at Cinven, said: “In Partnership we have acquired an attractive, market leading business operating in high growth markets.  The UK annuity market is growing 15 percent a year compound and the impaired and enhanced annuities market in which Partnership operate are expected to exceed this.”

Regulatory developments including the promotion of the use of the Open Market Option for annuity purchases are expected to encourage significant future growth, the firm said. 

The rapid migration to defined contribution schemes and demographic trends will also drive fairer pricing of annuities in the UK.  Catterall said: “We like the business because it is fair to the customer. They do better because the product is tailored to them.”

Cinven said it expects to make significant investment in the staff, brand, infrastructure and distribution channels in order to drive long term value from this high growth segment of the financial services market.  However it is not relying on debt financing to achieve this.

Catterall said: “Our equity investment in Partnership is entirely consistent with Cinven’s investment strategy  and our other investments in the fund.  This is not a highly leveraged buyout – it is a capital structure appropriate for a regulated life company.  We believe that we can generate strong returns as a result of the significant growth opportunity in the market.”

Phoenix originally acquired a 79 percent stake in Partnership in September 2005, when it acquired the assets and undertaking of the Pension Annuity Friendly Society through the UK’s first ever private equity-led demutualisation of a financial services mutual company. Phoenix invested a total of £16.5 million in Partnership.

Under Phoenix’s ownership, Partnership has shown strong growth, with premium income of over £220 million in 2007 representing an increase since the 2005 demutualisation of over 130 percent. During the same period the number of employees has also increased from 83 to 136.