As per notice to Pakistan Stock Exchange, TRG Ltd has notified that Primerica Inc, a Delaware Corporation has entered into a share purchase agreement with E-Telequote Limited to acquire 80% of the shareholding at an Enterprise Value of US$600mn. The remaining 20% stake will be acquired by Primerica over next four years.

The deal is expected to finalize after July 2021.

The actual deal value of E-Telequote at US$600mn is on a higher side and above analyst consensus. Enterprise Value(EV) of US$600mn leads to EV/EBITDA and EV/Sales multiples of 10.3x and 3.1x.

The Purchase Agreement also includes the potential for contingent consideration of up to US$50mn to be paid by acquirer to selling parties in the form of earnout payments of up to $25mn in each of 2022 and 2023 subject to meeting certain conditions. These conditions include achieving forecasted EBITDA by the E-Telequote.

Out of the proposed 80% stake, TRGIL (45% owned by TRG Pakistan) is expected to sell its 70.25% in the target company while the remaining 9.75% shareholding is held by the management of E-Telequote. The expected Net Equity value (adjusted for debt) of E-Telequote in this transaction is around US$450mn.

The selling parties (TRGIL and management of E-Telequote) will get US$345mn cash (and the remaining US$15 in subordinated note) which is 80% of total equity value of US$450mn.

We estimate that TRGIL will receive cash of US$316.125mn (or PKR 48billion) from this transaction. Given 45% stake of TRG Pakistan (TRG) in TRGIL, the impact on TRG will be US$142.25mn or PKR21.6billion (PKR40/share).

It is clear that TRG Pakistan is the beneficiary of this transaction. As per the management of TRG Pakistan, it can distribute cash dividend, Buyback of TRG Pakistan shares or give shares of other subsidiary companies as special payout to Pakistan shareholders.

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