JSMedia – In a recent announcement, Arch Capital Group Ltd. announced that it has entered into an agreement to acquire Westpac Lenders Mortgage Insurance Limited (WLMI), an Australian-based captive lender. The transaction will see WLMI remain in operation and continue to provide LMI to the Westpac Group for residential mortgages. The deal is subject to regulatory approval and other closing conditions, and will close in September 2021. The sale of WLMI will result in a loss for the parent company, as well as write-down of AUD 84 million in goodwill. Moreover, Arch expects the acquisition to add 7bps to Westpac’s Common Equity Tier 1 capital ratio.
The deal will result in the elimination of a significant number of WLMI’s staff and operations. The transaction will create a new group focused on the Australian market, and Arch Capital will also provide additional resources and expertise to Westpac. In addition to its strategic positioning, the acquisition will improve Arch’s financial performance, and its market share will increase substantially. Similarly, the deal will boost Arch’s profitability.
The deal will be completed in August 2021. Credit Suisse, KPMG, and Clyde & Co acted as financial and tax advisors for the two companies. Moreover, the legal advisers were Andrew Hirst, Ryan Leslie, and Adrian O’Shannessy for the Westpac Banking Corporation. The transaction is subject to closing adjustments, including the payment of a pre-completion dividend of $52 million.
Arch Capital Group Ltd to Acquire Westpac Lenders Mortgage Insurance Limited
The transaction will allow Arch to remain active in the Australian LMI market, while continuing to support WLMI’s reinsurance treaties. The acquisition will secure Arch’s Australian LMI flow from Westpac Bank. By acquiring WLMI, Arch will become the only global LMI insurer to offer a wide range of products and services to lenders. This combination will also enhance the Group’s position in the Australian market.
The deal is a long-term deal for both companies. After the transaction is completed, WLMI will be the exclusive provider of LMI for the Westpac Group for the next 10 years. Until that time, the new supply agreement will be based on the current relationship between the two companies. With the acquisition, WLMI will retain its name as the only LMI provider in Australia.
While the deal is a major deal for investors, the acquisition will not affect the company’s competitive advantage. WLMI has been active in the Australian market for over a decade. As a result, the merger will provide the Australian banks with better access to mortgage finance. This will make the entire country’s banking sector more accessible and competitive. For example, the company will have a more prominent presence in the international markets.
While the acquisition will not affect the company’s competitive position, the deal is a good one for the Australian market. The acquisition will help WLMI continue to provide lenders with the necessary mortgage protection. Further, the merger will allow Arch to diversify its product offering and remain a competitive lender. It will be the sole provider of lenders’ mortgage insurance in Australia for up to ten years.