North American insurance executives point to expanding into new geographies, product lines and distribution as the leading drivers for increasing M&A activity over the next one to three years, according to global professional services company Towers Watson.
“Insurance M&A activity slackened to an unnaturally low level in most parts of the world after the 2008 financial crisis,” said Jack Gibson, Towers Watson’s global lead for insurance M&A. “But lately we’ve seen a strong trend toward accelerated activity that has featured bold, transformative moves into new geographies, product lines and distribution systems. Many of these recent deals have been well received by both buyers and sellers, bringing significant value, attractive platforms and superior talent to the marketplace.”
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In fact, in a recent survey by Towers Watson, 86 percent expect to see an increase in the volume of insurance mergers and acquisitions over the next one to three years, compared to the previous three years, and 78 percent said they are actively considering acquisitions. Ranking the leading drivers and impediments to this activity, 58 percent said the most significant factors to fuel further activity will be strategic intention to expand into new geographies/sectors. Fifty-seven percent cited difficulties of organic growth given the challenging economic times, and 54 percent said general economies of scale. Conversely, 55 percent cited the price expectation gap between buyers and sellers as the major impediments to activity, and 52 percent said limited availability of viable opportunities.
Insurers that are considering acquisitions cited several different areas of focus, with 64 percent seeking an opportunistic purchase (one where the right deal comes along) and 55 percent interested in bolt-on acquisitions within an existing geography and segment. Nearly half (47 percent) said they would focus on expansions into new markets, with 47 percent indicating they would pursue acquisitions to improve access to new customer segments, distribution capabilities, product expertise, or other technical or operational capabilities.
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“Each insurer has its own philosophy about acquisitions, but there are a few parameters all acquirers should observe,” Gibson said. “Foremost, insurers need a clear M&A strategy developed in advance that aligns with their broader corporate strategy. Those that do are most likely to find a strategic fit that makes sense from both a near- and longer-term perspective. Beyond financial considerations, it is vital for insurers to carefully consider integration and cultural issues in advance, not after the deal is announced, as some deals that are strategically and financially attractive may not be good organizational fits. It is also important that insurers continually evaluate assumptions during the due diligence period to confirm the transaction still makes as much sense at the time the offer is made as it did earlier in the process.”
