After dropping to “unnaturally low” levels during the 2008 financial crisis, mergers and acquisitions activity appears set to increase in volume over the next one-to-three years, a recent survey suggests.
Towers Watson says 86% of North American insurance executives “expect to see an increase in the volume of insurance M&As over the next one-to-three years, compared to the previous three years….”
The firm adds 78% of the executives say they are actively considering acquisitions. Specifically:
- 64% say they are seeking an opportunistic purchase, or “one where the right deal comes along,” Towers Watson says.
- 55% say they are interested in bolt-on acquisitions within an existing geography and segment.
- 47% say they would focus on expansions into new markets.
- 47% say they would pursue acquisitions to improve access to new customer segments, distribution capabilities, product expertise or other technical or operational capabilities.
Regarding the most significant factors that could fuel further North American M&A activity:
- 58% say strategic intention to expand into new geographies/sectors.
- 57% say difficulties achieving organic growth given the challenging economic times.
- 54% say general economies of scale.
Major impediments to increased activity, according to the survey respondents, include price-expectation gaps between buyers and sellers (55%) and limited availability of viable opportunities (52%).
“Each insurer has its own philosophy about acquisitions, but there are a few parameters all acquirers should observe,” Jack Gibson, Towers Watson’s global lead for insurance M&A, says in a statement. “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.”
The survey involved 60 North American insurance executives across the life and property and casualty sectors who participated in an online survey from Jan. 8 through Jan. 27.