Lloyd’s Register (LR) is selling its business assurance arm to Goldman Sachs Asset Management in its second major disposal in less than a year.
The move by the classification society is aimed at freeing up cash to refocus on its core maritime businesses.
The sale of its LRQA division, which generates more than a third of LR’s revenues and has over 2,500 staff, is the largest deal in the group’s history.
It marked a “fundamental change” to target ocean industries, chief executive Nick Brown said.
“It’s a big deal for us, as it’s the biggest divestment in our history,” Brown told TradeWinds. “It’s a fundamental change in our story and is exciting for colleagues and our customers.”
Terms of the sale have not been disclosed. The deal is likely to be completed in the second half of 2021 after regulatory approval. Goldman Sachs Asset Management manages around $2trn of investment funds for clients.
A decision to sell its business assurance and inspection services division, which will continue to trade as LRQA, came after its five-year strategic review that concluded the group would be stretched to meet rapidly changing client needs across all its current areas of operation.
“The pace of digital change is accelerating, as is the pace of society’s expectations to address the climate emergency,” Brown said.
Once-in-a-lifetime
“We think this gives a once-in-a-generation chance to capitalise on what we do as a trusted advisor. But we didn’t think we could do it at the pace and intensity necessary across all sectors.
“Now was the right time to refocus all our efforts on maritime, where LR has greatest legacy both as a brand and as an organisation.”
In October, LR sold its energy business unit to London investment firm Inspirit Capital to create a new engineering and technical consultancy for industrial assets.
And earlier this year, Brown made the key appointments of Mark Darley to lead the maritime compliance services operations and Andy McKeran to lead its maritime advisory services.
LRQA has grown over the last 35 years to serve a wide range of clients in many sectors globally, from food and hospitality to engineering and medical, with certification services including cyber security.
“We are delighted to invest in LRQA and look forward to accelerating the company’s growth trajectory both organically and through acquisitions,” said Michael Bruun, Goldman Sachs Asset Management's head of private equity business for the EMEA region.
“We are excited by LRQA’s strong ESG capabilities and the important role the company plays supporting clients managing their sustainable growth path.”
Unique reputation
Jose Barreto, who is head of business services for the EMEA region in Goldman Sachs Asset Management's private equity business, said LRQA “is a highly regarded business with unique reputation and brings a large, diverse, high-quality customer base and strong positions in management-systems certification, as well as food, environmental, marine and cyber”.
Paul Butcher, who has led the growth of the division within LR for the past three years, will take on the chief executive role for LRQA.
“We are at a critical moment in our journey and now is the right time for LRQA to become a fully independent business,” he said in a statement.
“This transaction will provide the additional focus we need to accelerate our ambition of becoming a leading digitally enabled assurance provider, at a time when our customers face an increasingly challenging operating landscape.
“The new ownership structure will help us strengthen our first-mover advantage in digital and capitalise on increasing demand for assurance, inspection and cyber security services delivered by a trusted provider.”
LR's business assurance arm generated turnover of £322m ($446m) in the fiscal year ending in June 2019, which are the most recent figures publicly available. Of LR’s £893m in total revenue that year, marine and offshore generated £428m.
Between 2014 and 2018, LR saw statutory operating profits fall from £37m to £7m as turnover slipped from £1.03bn to £864m. In 2019 statutory operating profit rose to £10m.
LR is expected to publish more recent results shortly, which will cover 18 months to the end of 2020 due to the company changing its financial year end.
