Analysis of the major acquisitions completed by stock market-listed insurance companies around the world between January 2008 and December 2013, extracted from the on-going Quarterly Deal Performance Monitor (QDPM) compiled by Towers Watson in partnership with Cass Business School, has revealed that the acquirer’s share price has typically out-performed the insurance industry average by an excess 4.2 percentage points (pp) in the months before and after deal completion.
This compares to an equivalent figure from the on-going study of deals in all sectors conducted by Towers Watson and Cass Business School that shows a median outperformance of 2.6pp against the global MSCI index over an equivalent period across over 3,800 deals.
The short-term gains to insurers were broadly shared equally between life, property and casualty (P&C) and composite businesses, but the longer-term picture has proven less rosy across the board. Two years after completion of a deal, the issues associated with delivering shareholder value from acquisitions in the insurance sector had resulted in little or no average valuation premium, compared with insurance stocks as a whole.
Andy Staudt, P&C insurance M&A leader (EMEA) at Towers Watson commented: “These figures suggest that the global investor community clearly sees a rationale for M&A activity across much of the insurance sector but still has to be persuaded on the track record of some companies in delivering their projected post-deal financial results.”
The most positive share price outcomes have resulted from acquisitions completed in the acquiring company’s own country. Deals of this type have typically resulted in an excess return to investors of 8.3pp in the short-term and 7.9pp in the two year window after completion.
Andy Staudt noted: “This supports the idea that it’s easier to generate returns in a market you understand well. It also corroborates the finding from our recent survey of over 250 global insurers’ M&A intentions of a ‘home bias’ when looking at the relative attractiveness of various markets.”
Nevertheless, cross-regional activity, along the lines of Western insurers expanding in emerging markets such as Latin America and Asia, has also resulted in short-term excess returns of 4.5pp.
The analysis also shows the complexity of many insurance sector deals. These had an average completion time of approximately 116 days compared with approximately 70 days for other industries.
Andy Staudt said: “The drop-off in share price performance two years after deal completion and the time taken to conclude transactions support the viewpoint that evaluating and making a success of acquisitions in insurance, where the actual costs of production are not known until many years after the sale of a policy, is possibly not as straightforward as acquiring a company that manufactures widgets. Acquisitions have been and will continue to be a successful growth strategy for a number of insurance companies, but there is still very much the need to go into a deal with a full understanding of factors such as the longer-term strategic fit of the target, variations in competitive and regulatory environments, retaining talent and systems and technology requirements if the desired financial returns are to be achieved.”
|
