Ernst & Young predicts mergers and acquisitions will continue to rapidly grow in 2018. In its report Global Insurance M&A Themes, 2018 Moving from Optimization to Transformation, the company notes insurers are looking for growth strategies and are trying to reinvent themselves in the digital age.
“Deal activity in 2017 contained signs of the M&A trends that we expect to see accelerate as more insurers seek to transform, using business acquisitions or disposals as elements of that transformation,” the report said.
Meyer Shields is an analyst for Keefe Bruyette & Woods (KBW). He agrees with the Ernst & Young assessment and says prices are high but not high enough to deter buyers.
“There is some level of anticipated consolidation in the valuations, but nothing prohibitive yet,” he said.
Fitch Ratings spokesman James Auden pointed out that AIG bought Validus Holdings for $5.56 billion in January and France’s Axa S.A. is looking at picking up the XL Group for $15.3 billion. “The deals that have happened the past couple of years haven’t been sellers that are in trouble. These deals are more strategic in nature; you’re seeing premium in the purchase price,” he said.
His bottom-line is this: “The buyers want to grow strategically in a mature marker. The sellers are getting favorable prices,” Auden concluded.
Shields agrees and says we’ll see a lot more purchase in the near future. “When companies consolidate, one of the things they are looking for is to be able to provide a greater array of product expertise to brokers and clients,” Shields said.
Auden’s biggest worry is companies being in a hurry. “There’s definitely benefits to diversification in insurance, but acquirers must have the expertise to operate in the various market segments,” he said.
That leads us back to the Ernst & Young report.
“We see a range of likely M&A activity forming part of the overall transformation of the sector in the short-to-medium term. The question of ‘buy or build’ has become central to many insurance M&A decisions and will continue to underpin consolidation as well as targeted acquisition of capabilities,” the report concluded.
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