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Horace Mann (HMN) to Buy Madison National, Expand in Education

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Horace Mann Educators Corporation HMN has agreed to buy Madison National Life Insurance Company from Independence Holding Company IHC for $172.5 million. Pending regulatory approval, the transaction is expected to be closed in the first quarter of 2022.

The acquisition is expected to boost Horace Mann’s presence in the education market.

About Madison National

Headquartered in Madison, WI and founded in 1961, Madison National Life Insurance Company is a subsidiary of Independence Holding Company, offering short- and long-term group disability, group life and other products, with K-12 school districts representing 80% of 2020 premiums.

Madison National generated $108 million in net premiums last year while statutory earnings were $14 million at 2020 end.

Post closure, Madison National will become a wholly owned subsidiary of Horace Mann.

Financing the Deal

Horace Mann intends to utilize cash balance and additional borrowings on its revolving credit facility to fund the acquisition. The revolving credit facility has been extended to 2026 and expanded by $100 million to $325 million to provide ample liquidity.

The acquirer will spend $115 million in cash and $65 million through debt. Leverage ratio is estimated to be slightly below 25.

Horace Mann aims year-end RBCs of 425% for life and retirement subsidiaries and 400% for property and casualty subsidiaries.

Independence Holding Company will have a potential earnout of up to $12.5 million payable in cash, if specified financial targets are achieved by the end of 2023.

Rationale of the Transaction

This Zacks Rank #2 (Buy) largest multiline financial services company serves the U.S. educator market. It noted potential opportunity in the K-12 educator market. An 8% increase in the number of K-12 teachers is anticipated between 2015 and 2027. A demographic shift is expected as baby boomers retire and millennials make up a higher percentage of the workforce.

The addition of Madison National is thus a strategic fit for Horace Mann, boosting its presence in the education market. It brings in new suite of employer-sponsored benefit products and new independent benefit broker distribution to K-12 school districts. In 2019, the company acquired National Teachers Associates Life Insurance Company, in line with its strategic focus on the education markets.

President and CEO of Horace Mann, Marita Zuraitis stated, “The transaction accelerates our progress on all fronts of our multi-year strategic plan: strengthening our product offerings, enhancing our distribution, and adding capabilities to our infrastructure.”

The acquisition is estimated to be $7 million to $9 million or 15 to 20 cents per share accretive to Horace Mann’s 2022 earnings. It will also add 50 basis points to return on equity (ROE) excluding net unrealized gains and losses on fixed maturity investments. Horace Mann estimates generating double-digit core ROE over the 2021-2025 period.

Long-Term Distribution Agreement with NIS

Concurrently, Horace Mann inked a long-term distribution agreement with National Insurance Services (NIS), to be effective post closure. NIS is an employee benefit brokerage subsidiary of AssuredPartners, Inc., and has been a key distribution partner for Madison National for almost four decades. The agreement covers short- and long-term group disability, group life and group supplemental products.

Price Performance

Shares of Horace Mann Educators have lost 8.9% year to date against the industry's increase of 9.7%. Transformational actions, profitability initiatives and niche market focus should help shares to rebound.

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Acquisitions in Insurance Space

Given an active M&A market in 2021, sturdy capital level and a low rate environment (helping in borrowing funds at low coupon rate), the insurance space continues to witness a host of strategic consolidations. Recently, State Auto Financial Corporation STFC agreed to merge with Liberty Mutual Holding Company. Athene Holding Ltd. ATH along with Apollo Global Management (APO) agreed to purchase 15% stake in Challenger Limited.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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State Auto Financial Corporation (STFC) : Free Stock Analysis Report

Athene Holding Ltd. (ATH) : Free Stock Analysis Report

Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report

Independence Holding Company (IHC): Free Stock Analysis Report

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