Dealing from a position of strength: Making the most of the upsurge in insurance M&A

by Nick Lush Director

Email +44 (0)7590 807119

As the pace of mergers and acquisitions accelerates, some insurers are in danger of being caught flat-footed. Others risk rushing in without a clear sense of how the deal would help to deliver their strategic ambitions or an actionable plan for securing the payback on investment. So, how can you deal from a position of strength?  

Key developments in the M&A market include both further mid-market consolidation and a search for diversification and access to specialist expertise among larger groups. In turn, private equity firms are looking to both buy insurers for turnaround and sell on earlier acquired businesses where their work is complete. And with acquisition prices on some of the recent deals having reached 1.5 times book value, many insurers see this as a good time to divest non-core operations or sell-up altogether.

Caught on the hop

The big danger in a market that’s moving so quickly is lack of preparedness.

At one end of the spectrum, sketchy planning and slow response could result in falling behind faster-moving competitors and becoming a target yourself. From a divestment perspective, the risks include insufficient focus on optimising the operations earmarked for sale and readying them for clean separation. Both the number and value of offers could be diminished as a result.

At the other end of the spectrum, there is a risk of a reactive and overly hasty response as targets come on to the market. M&A makes little sense unless it can clearly help your business to deliver your strategy for growth. And acquisition with multiples having risen, the bar for securing the payback is now much higher.

Ready to deal

So, how can your business get on the front foot and maximise deal value return in this market? Our work with insurers highlights four key priorities:

  1. Strategic clarity and fit

Ensure deal planning is clearly linked to strategy. Key considerations include what are the market openings that could transform your growth potential? What capabilities do you need to capitalise? Do you have them and, if not, do you build or buy?

These evaluations can help to identify the key deal drivers – ‘Value Bridges’ – covering specific areas of revenue growth, talent acquisition or operational efficiency, which can then be matched against potential targets. The more prepared you are up front, the quicker you can move in on opportunities and hit the ground running following acquisition.

  1. Optimise combined functions

Plan how to optimise the combined group’s people and processes. How quickly can operations be brought together – for example, by bringing central and back office functions onto one site? How can you ensure retention of key talent?

Focusing on the systems is essential as integrations tend to deliver at the pace of the technology. Acquirers often look at integration from the bottom up and try to bring together each component in turn. However, this can heighten the risks (see point three). A more effective approach would look top down to identify a hierarchy of priorities, opportunities for streamlining and possibly moving certain parts of the infrastructure onto new platforms.  

  1. On top of the risks

Put in place robust governance and planning to ensure that the operational risks associated with a large-scale M&A are appropriately managed. All business integrations have risks. For insurers, there are particular difficulties in bringing together what can often be unwieldy and incompatible legacy IT.

A useful basis for integration planning is charting a ‘day in the life’ of the business now and how this would look further down the line, after six months, for example. You can then develop a road map for the transition states, which sets out what will change and who needs to do what and when.

This process is ideally guided by a dedicated integration director – a ‘Deal Value Architect’ – who would be responsible for drawing up the transition state plans and seeing them through to execution.

  1. Tracking and managing delivery

While focusing on the expense base is always important, it can be an especially critical deal value lever within private equity acquisition and turnaround strategies.

The key is clear identification and pricing of the value bridges (e.g. tech-driven cost savings). Delivery against these targets can then be tracked and, where necessary, proactive interventions made to get underperforming areas back on course.

Maximising the opportunities

The gathering deal momentum is an opportunity to deliver a robust and scalable platform for growth. Yet, wait too long, and you could find that the most suitable partners are gone or your bargaining position is weakened. So, if you want to deal from a position of strength, the time to get moving is now.

Watch our webcast 'Maximise M&A and Divestment Value' - we explore the latest trends in M&A and how you can make the most of your dealmaking activity. Watch now. 

by Nick Lush Director

Email +44 (0)7590 807119