A.M. Best Special Report: European Mergers and Acquisitions: Consolidation is the Trend
The report, titled: “European Mergers and Acquisitions: Consolidation is the Trend,” considers the drivers of M&A transaction volume, which include the overall pricing level of transactions, impact on profit and return on equity, projected solvency measures post deal and identifiable competitive advantages and ability to exploit them over time. Other factors contributing to activity include the extent of expense synergies, the availability of sellers, and regulatory/tax/legal and political considerations. Increased stability in the economic outlook is also a significant spur to activity.
Anthony Silverman, senior financial analyst, said: “Insurers appear to have moved beyond seeking scale at a corporate level and consolidation is a theme of transactions, alongside utilising a large cash component to fund acquisitions – even for the biggest deals. Weaker operations in a corporate context have typically been sold to players with a stronger presence in the relevant market. Buyers have often sought to enhance profile and performance through cash acquisitions. In emerging markets, a perhaps natural presumption that European insurers’ M&A involvement is principally as buyers is not supported by the data. On the contrary, there is an equally significant proportion of transactions where European insurers were selling, to other developed market buyers and also to emerging market counterparties.”
A.M. Best has placed transactions into different categories, with “in-market consolidation” (when the acquisition is in the buyer’s home market) accounting for 25% of the total deal values from 2012 to 2016, while “cross-border developed market” (involving an insurer headquartered outside the territory of the subject assets) and acquisitions of “London market” participants, each represented 24%. “Emerging markets” and “run-off” acquisitions concerning legacy liabilities are 21% and 6% of transactions, respectively.
The research noted that 2012 and 2016 experienced relatively depressed levels of activity compared with other years in the period analysed. Silverman said: “M&A activity requires at least a credible view of the combined entity’s prospects after a transaction and this, in turn, is far more difficult to achieve when the economic outlook is unstable. One marker of unstable conditions is movements in interest rates – 2012 saw a pronounced fall in European interest rates from what were already low levels toward the unprecedentedly depressed rates that have persisted since then, with 2016 witnessing a move to negative interest rates in the region. While this move represented new and unfamiliar territory, other years in the period of the data set saw reasonably stable interest rates.”
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=260468.
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