Quick Update on Brighthouse Financial's Potential Sale

PE firms have too much cash and are competing for the same assets.

I took a roughly 2.5% position in the stock after there was a report in the Financial Times that they are looking for a buyer. I took a position after it jumped from ~$50 to $62 on the news. It is now only a little above my cost base.

I have seen private equity make a lot of questionable investments in the last few years. It seems they have too much money and are competing for the same assets. Is it unreasonable to think they could pay a bit more than the current price for Brighthouse Financial? I don’t think that is unreasonable, so I looked at what information I could find besides what was in the Financial Times article to get a better sense of any potential bids.

I posted a note earlier with Barclays upping their price target to $85 and their reasoning based on a potential sale.

I looked at potential comps and what PE firms are willing to pay and have paid for these life insurance companies. The comps below are companies that mostly sell fixed annuities vs BHF who focusses on variable annuities so these are not apples-to-apples. BHF’s variable annuities will probably command a lower relative buyout price but there does seem to be interest from PE firms for their investible assets and the downside is likely limited to $50 where it was trading before the news.

I looked at two recent sales and one potential sale in the sector

Brookfield Re paid about 5.8% for American National Group’s investable assets in 2023.

KKR paid about 4.88% for Global Atlantics also in 2023.

Reports around the sale of Viridium Group is a price paying about 4.4% for their assets - but no deal has been closed.

In comparison BHF has nearly $120B in investable assets - but as noted their variable annuity business is more complex and requires more hedges so they might not get as good a bid, if one goes through. A bid around 4% of the assets would get you to $80 a share.

The stock jumped to $62 after the report came out - likely worse case no deal goes through and it drops back to their 5 year average of $50 a share. Market value drops back to $3B and the company continues their buy back program at $250M a year.

They are trading at mid-single digit multiples.

PE firms want the investible assets because they think they can earn more than BHF with their bigger pool of opportunities. And they have tons of capital to meet the regulatory requirements of the business.

From experience - these buyouts often take longer than I anticipate to close, if they do. And trying to guess a buyout price is very difficult but the risk reward here looks decent.

Also Greenlight has owned this since it was spun-off from MetLife, they own about 5%. So you have a value investor on board that knows the company very well and that should at least limit the risk of a potential take-under.

I’ll update this based on additional information I find.