Analysis of major acquisitions completed by global, publicly traded insurance companies between 2008 and 2013 shows the acquirer’s share price has outperformed the insurance industry average by 4.2 percentage points in the short term.
The analysis was extracted from the ongoing Quarterly Deal Performance Monitor (QDPM) compiled by Towers Watson (NYSE, NASDAQ: TW) in partnership with Cass Business School.
In addition, acquiring insurers’ short-term share-price outperformance compared favorably to a similar analysis that assessed more than 3,800 deals that were measured against performance of the global MSCI index across all sectors over an equivalent time period. The median outperformance for such deals, months before and after deal completion, stood at 2.6 percentage points.
The short-term gains to insurers were broadly shared equally among life, property & casualty and composite businesses, but the longer-term picture has proved less rosy across the board. Two years after completion of a deal, challenging issues associated with delivering shareholder value from acquisitions in the insurance sector resulted in little or no average valuation premium, compared with insurance stocks as a whole.
“Acquisitions have been and will continue to be a successful growth strategy for a number of insurance companies, but to achieve the desired financial returns, there is still the need for a deep, advanced review and understanding of factors such as the longer-term strategic fit of the target, variations in competitive and regulatory environments, retaining talent, and the requirements related to systems and technology,” says Jack Gibson, Towers Watson’s global lead for insurance mergers and acquisitions (M&A).
The most favorable share-price outcomes resulted from acquisitions completed in the acquiring company’s own country. Deals of this type typically led to an excess return for investors of 8.3 percentage points in the short term and 7.9 percentage points in the two-year window after completion.
“This supports the idea that it’s easier to generate returns in a market you understand well,” says Gibson. “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,”
“To fully assess the value of cross-regional activity, returns need to be considered over a much longer time period, as many of these deals are based on long-term growth strategies,” Gibson adds.
The analysis also showed 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.
Insurance sector deals were identified from the Towers Watson QDPM, which conducts analysis from the perspective of the acquirer on a standardized, year-to-date basis. It includes all completed individual M&A deals worth more than $100 million. The survey of insurers’ M&A intentions was carried out with Mergermarket in the second half of 2013.