New York : Citigroup is set to sell off a stake worth about $234 million (Dh858.78 million) in Primerica, which sells life insurance and financial advice, and while the deal is far from perfect, some analysts think the offering could sell well.
Few other financial services companies cater to Primerica's niche — lower-middle-class and middle-class families. And the offering's valuation is relatively low compared to other life insurance companies.
Private equity firm Warburg Pincus will buy up to a third of the company, which is a vote of confidence in the business, analysts said.
"Warburg Pincus has put this thing together and they expect to make money. If people buy at the IPO price they'll be buying right along with Warburg's price," said IPOdesktop.com President Francis Gaskins said on Friday.
Primerica's target audience is households with an annual income of $30,000 to $100,000. As the economy recovers, these households could feel more comfortable investing and buying life insurance products, analysts said.
Risks
There are definitely risks in buying Primerica shares. Primerica will not keep any of the proceeds from the offering, so the funds will not bolster the insurer.
Citi, which is leading the underwriters, is taking the IPO proceeds, and has taken substantial funds out of the business through dividends in recent years-- nearly $1 billion since 2007.
The bank will take another $622 million in dividends before the completion of the IPO.
"When there is a spinoff generally the parent extracts its pound of flesh, which is certainly the case here," said Linda Killian, a portfolio manager with Renaissance Capital.
