“The implied transaction multiple on a 2014 earnings basis is 8.2x *** and on Irish Life’s June 2012 book value is 1.3x” extract from the press release from Great West Life announcing the acquisition, subject to regulatory confirmation, of Irish Life from the Irish government for €1.3bn
No, Minister for Finance Michael Noonan extracted €1.3bn from the buyer Great West Life in a deal announced this week, and he obtained a pre-sale dividend from Irish Life of €40m, meaning the deal was worth €1.34bn and that compares with the value placed on Irish Life by the Department of Finance last Summer 2012 and it is also around the €1.3bn sale price in December 2011, when it is understood GWL came close to buying Irish Life for €1.3bn. So, no, Minister Noonan didn’t give away Irish Life, but did he sell the life assurance company short?
There’s a strong body of opinion which suggests he did.
Remember 14 months ago – we were on the verge of closing the sale of Irish Life for €1.3bn. Cast your minds back to December 2011, that was when the euro was close to collapse, the new ECB president had announced a wall of cash with cheap 3-year loans to banks, Ireland’s long term borrowing costs were at 9%, we were convinced that Greece was on its way out of the euro and possibly, out of the EU. Domestically, the Q3,2011 national accounts showed that both GDP and GNP were declining, property prices were falling like a stone, unemployment was just under 15%, retail sales were down, construction was down and even our robust export sector looked as if it was under threat from lackluster demand from Europe and the UK. The ISEQ was at 2,900. In the UK, the Prudential was trading at 618p a share.
But since then – and remember in December 2011, the betting was that the sale of Irish Life to GWL would close at €1.3bn – the EuroZone has been calmed through a series of reassurances. Ireland has a deal on its promissory notes and our long term cost of borrowing is today at 3.6%. Unemployment is down at 14.6% though it is still elevated, the last half year of property prices has pointed to some stabilization, mortgage lending was up strongly in 2012 compared with 2011. The ISEQ is at 3,700. The Prudential is trading at 977p a share.
So, we’re in an altogether better place than December 2011, when the sale price was €1.3bn. But the sale price hasn’t changed, and when you compare Irish Life with a European peer like Prudential, you might expect a current valuation to have a 50% premium on the €1.3bn valuation in December 2011.
There are various ways of valuing a company, including comparing valuations with other similar companies, but what stands out with the Irish Life sale is that using the multiple method of valuation where you take a company’s profit and multiply that by the ratio of valuations to profit of similar companies, is that Irish Life was sold short. According to the press release issued by Great West Life when it announced the acquisition of Irish Life this week, it is paying 8.2 times the earnings in 2014. Right now, Prudential in the UK is trading at 15.98 times its earnings – almost double.
The UK is a different market to Ireland, but if anything, it is far more competitive so you would expect a British life assurer to be trading at a smaller price earnings multiple than an Irish company. The UK economy is also facing lower growth than in Ireland, and it faces a triple dip recession. All the more reason for the Irish company to be worth more.
Minister Noonan refuses to provide any real information on the sale of Irish Life. He dismisses any challenge to the sale with the assurance that Goldman Sachs were heavily involved on our behalf.