Acquisitions have boosted share price performance of insurers — but only in the short term
In addition, acquiring insurers’ short-term share-price outperformance compared favorably to a similar analysis that assessed over 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,” said
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. 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,” said Gibson. Nevertheless, cross-regional activity (along the lines of Western insurers expanding in emerging markets such as
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.
About Quarterly Deal Performance Monitor
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 over
Binoli Savani, +1 703-258-7648
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