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Portfolio > Alternative Investments > Private Equity

Private equity expected to drive M&A in life space

By Warren S. Hersch

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Nearly six in 10 corporate and private equity executives connected with life and P&C insurers say they plan to make acquisitions in North America in the year ahead.

This is a key finding of the “Global Insurance M&A Outlook.” Sponsored by Mayer Brown LLP in association with Mergermarket, the report explores the similarities and differences between the factors impacting M&A interest and activity in the life and P&C markets during the past 12 months. The research analyzes corporate strategies, including geographic expansion, product expansion and divestitures.

The report reveals that 57 percent of corporate and private equity respondents say they expect to make acquisitions in North America in the next 12 months. In contrast, 44 percent of Europe-based respondents expect to make acquisitions in North America. Among Asia-Pacific-based respondents, the percentage is 73 percent.

Half of the survey respondents expect that, aside from mergers and acquisitions, their companies will use new distribution channels, and 67 percent expect to be involved a strategic alliance over the next 12 months.

“These partnerships offer insurance companies, which often focus on niche products, the opportunity to tap into another company’s resources,” the report said. “By collaborating, these companies are able to provide their clients with a more diversified array of product offerings as well as a wider distribution channel.

“An example is the strategic alliance between The Allstate Corporation and ING Companies announced in December 2013,” the report adds. “This provides Allstate customers with ING-issued fixed annuity offerings, which Allstate no longer issues but still wants to provide clients.”

Among the report’s additional findings:

  • 85 percent of respondents say they will finance their acquisitions using their balance sheets, reflecting the strong capital position of many insurers;
  • 53 percent of respondents say they will access the bank loan market to fund their purchases, compared with 42 percent saying they will use bonds. Nearly three in 10 (29 percent) say they will use equity as currency;
  • 74 percent respondents say that divestitures will be the most common type of transaction as a direct result of increased capital requirements;
  • 60 percent of respondents view capital requirements as one of the biggest regulatory challenges affecting deal-making in 2014, while 40 percent name compliance challenges as a significant obstacle; and
  • 55 percent of respondents believe that private equity buyouts will be the most common deal type the next 12 months for the life subsector.

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