Insurtech Luko has been placed in receivership, after deal with incumbent insurer Admiral fell after audits through at the end of October, according to Sifted research.
Admiral was set to pay €14 mn for Luko Cover — €11 mn outright, plus an additional €3 mn tied to specific milestones. This partly explains why the M&A process was bumpy: Luko raised €72 mn during its solo journey, and it is easy to see how debtors may have been hard to accommodate.
Luko raised €72 mn to date from investors including Accel and Speedinvest, and had enough capital to acquire two insurtech rivals — Coya and Unkle — both in 2022.
Luko’s financial position significantly deteriorated after it was unable to raise fresh capital from investors to cover debts of €45 mn, €12 mn of which it owed to shareholders of Unkle.
Court-appointed administrator Hélène Bourbouloux is handling the new public bidding process, according to a person with direct knowledge of the matter. During the process, Luko has no say in the terms of a new deal.
The deadline for potential buyers to make a fresh bid for Luko’s main business, Demain ES, is December 13. The French commercial court will then decide on the best offer.
In the run up to Luko’s hearing in the French commercial court, the insurtech had hoped the judge would extend its safeguarding plan so it could finalise a deal it had reached with a new buyer.
That buyer was incumbent insurer Allianz with whom it had agreed a sale under the same conditions as the Admiral deal.
The insurtech’s cash position had significantly worsened since June, and the court instead placed it into receivership.
As for policyholders, Luko insists they don’t need to worry, TechCrunch writes, as Luko Cover, the broker and manager of contracts marketed by Luko, and Luko Insurance AG, the insurer of the Luko Group are separate entities. Luko’s insurance and brokerage activities therefore continue to operate normally, the company said.
The startup’s parent company had entered accelerated safeguard proceedings in June; but as a consequence of its insolvency, it will now be under judicial reorganization, a bad omen since this process often ends in liquidation.
But court documents reveal new details that emerged before Admiral withdrew from the deal.
Two audits revealed that Luko owed €1.375m in tax contingencies, which were to be distributed between its creditor Triple Point, the acquirer Admiral and Luko’s founders.
In addition, a fresh audit last month revealed a €2.3 mn discrepancy between the insurance premiums collected by the group’s Luko Cover business and those collected on behalf of third-party insurers.
Although these accounting discoveries are individual to Luko’s business, it may have avoided this fire sale situation if it had been able to tap investors for more runway. But investors tell they’re reluctant to invest in insurtechs right now, as economic headwinds weigh on their business model. But it’s become much harder for insurtechs to access these premiums, thanks to inflation and extreme weather volatility.
by Peter Sonner