But long-term gains are rare, according to Towers Watson and Cass Business School
Acquisitive insurers get a greater boost to their short-term share price compared to their non-acquisitive counterparts, according to Towers Watson and Cass Business School’s Quarterly Deal Performance Monitor (QDPM).
The QDPM found that insurers with an appetite for acquisitions out-perform the industry average share price by 4.2 percentage points (pp) in the months before and after deal completion.
But two years after a completed deal, issues associated with delivering shareholder value result in little or no average valuation premium compared with insurance stocks as a whole.
The QDPM finds that 3,800 acquisitive deals across all sectors show a median outperformance of 2.6pp against the global equity benchmark MSCI index over an equivalent short-term period.
Towers Waters P&C insurance mergers and acquisitions [M&A] leader Andy Staudt said: “The global investor community sees a rationale for M&A activity in the insurance sector but remains unconvinced of the track record of some companies in delivering their projected post-deal financial results.”
The most positive share price outcomes are from deals completed in the acquirer’s own country, according to the QDPM. These have typically resulted in an excess return to investors of 8.3pp in the short-term and 7.9pp two years down the line.
“It’s easy to generate returns in a market you understand well,” Staudt said.
“Our recent survey of more than 250 global insurers’ M&A intentions reveal a ‘home bias’ when looking at the relative attractiveness of markets.”
The QDPM also shows an average completion time of insurance sector deals of approximately 116 days compared with 70 days for other industries.
Staudt said: “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 the need to enter a deal with a full understanding of factors like longer-term strategic fit of the target, variations in competitive and regulatory environments, retaining talent and systems and technology requirements.”