The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Colina Holdings (Bahamas) yesterday said it paid “a fairly modest multiple” to acquire an affiliate from its majority shareholder, despite the $11.153 million purchase price being more than double CFAL’s net book value.

Responding to Tribune Business questions on what is a ‘related party transaction’, given that Colina Holdings is 58.2 per cent majority owned by CFAL’s seller, A. F. Holdings, the BISX-listed insurer said the purchase price was based on two independent valuations.

Emphasising that A. F. Holdings’ owners, attorney Emanuel Alexiou and financial adviser Anthony Ferguson, who are also Colina Holdings’ directors, were not involved in Board discussions on the deal, the insurer said CFAL’s purchase would “enhance net income and shareholder value”.

Tribune Business, using Colina Holdings’ accounts for the year to end-December 2013, has calculated that the $5.879 million in ‘goodwill’ paid by Colina Holdings accounted for 52.7 per cent of the CFAL purchase price.

‘Goodwill’ is the premium paid by acquiring companies, usually based on future cash flows and anticipated profits, over and above the ‘net assets’ or net book value worth of the firm being acquired.

In the case of the CFAL deal, the $11.153 million purchase price paid by Colina Holdings is more than double, or over 100 per cent higher, than the investment adviser’s $5.273 million net book value as shown in the accounts.

CFAL was shown as having $6.126 million in total assets, and $852,905 in liabilities, hence the $5.273 million net book value.

Given that the purchase is a related party dealing, with the $11.153 million purchase price being paid to the majority A. F. Holdings shareholder, it was imperative to ensure the transaction was done at ‘arm’s length’ and independently valued.

Otherwise, given the substantial goodwill premium, the question arises whether the purchase price paid was ‘fair’ to the 41.8 minority Bahamian shareholders, and if the deal’s benefits weighed heavily in favour of A. F. Holdings.

Explaining the hefty goodwill premium, Colina Holdings told Tribune Business: “As with the acquisition of any business, the purchase price should be reflective of the present value of future expected net income, plus the company’s current net book value.

“The ‘goodwill’ or excess paid over the net assets of CFAL is a fairly modest multiple of CFAL’s annual net income, and is consistent with the results of two independent appraisals. In addition, the goodwill was tested for appropriateness as part of Colina Holdings’s external audit.”

Emphasising that the transaction was conducted arm’s length, Colina Holdings added: “As part of Colina Holdings’s due diligence, the company obtained separate valuations of CFAL from two reputable and independent appraisers.

“Management then performed its own assessment of the valuations for reasonableness and provided its recommendations to the Board. The transaction was deliberated, and a final decision made by those eight Board members who had no interest in the transaction.

“Those directors with an interest in the transaction recused themselves from the deliberations. Subsequent to the Board approving the transaction and prior to its finalisation, the requisite regulatory approvals and disclosures were obtained and made.”

The CFAL purchase was announced quietly last year via a press release in the Nassau Guardian, a newspaper owned by A. F. Holdings. A transaction of such magnitude, involving a public company, is usually front page news, yet this item was placed on Page 2.

The purchase price announced then was $10.5 million, which was to be paid by an issuance of Colina Holdings’ preference shares to A. F. Holdings.

The insurer’s accounts confirm the issuance of 10.5 million preference shares last year, and Colina Holdings yesterday confirmed that the purchase price subsequently increased by over $700,000, requiring the deal to be changed slightly.

“During the closing process it became apparent that certain minor modifications had to be made to the agreement,” the BISX-listed insurer said.

“The overall result of these changes was not material to the transaction and resulted in a slight reduction in the purchase price. These amendments were approved by the Board on December 5, 2013.”

Explaining why it had chosen to acquire CFAL, Colina Holdings told Tribune Business: “The acquisition of Colina Financial Advisors diversifies the income of Colina Holdings Bahamas and is expected to enhance net income and shareholder value.

“Colina Holdings has gained ownership of arguably the leading investment manager and pension administrator in the Bahamas, and this purchase is consistent with the company’s ongoing strategy to enhance its position as the leading financial services group in the Bahamas. “

Elsewhere, Colina Holdings took a $1.038 million impairment on the value of its 19 per cent shareholding in Ansbacher (Bahamas), which contains the former Sentinel Bank & Trust, after the ‘offshore’ bank suffered an $896,809 net loss for 2013.

Colina Holdings’ share of that loss totalled $222,147, with the insurer’s share of Ansbacher’s net assets standing at $4.835 million.

The bank’s 2013 loss, incurred on revenues of $9.568 million, came on the back of a $1.055 million net loss in 2012.