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).