Last year was expected to be a boom year for merger and acquisition activity in the insurance industry. But that never happened. In fact, the total dollar value of merger transactions fell by almost 75 percent in 1999 compared to 1998, according to a new Conning and Co. report.
Conning also reports that the total number of merger transactions in 1999 decreased by more than 15 percent. Activity in 2000 is shaping up much the same.
The Conning study, “Mergers & Acquisitions and Public Equity Offerings: 2000 Edition,” reports that even though the economic climate was seemingly ripe for M&A activity in 1999, companies were more likely to acquire insurers’ individual business units to refine their position in specific markets, than to purchase entire companies for the sake of scale.
“Few companies involved in big mergers in 1997 and 1998 were able to make their investments pay off for them as quickly as they had hoped,” said Clint Harris, assistant vice president of insurance research and publications at Conning. “Perhaps they were unrealistic in their expectations. But clearly insurers in 1999 were much more wary of this kind of quick fix.”
In 1999, the number of M&A transactions in the insurance industry dropped from 565 in 1998 to 471 in 1999. Aggregate transaction value dropped even more sharply, from $165 billion in 1998 to just under $42 billion in 1999. While 23 of the 1998 transactions exceeded $1 billion, there were just 14 such transactions in 1999.
A large part of the disparity can be attributed to two major acquisitions in 1998: Travelers and Citicorp. for more than $37 billion, and Berkshire Hathaway and General Re Corp. for more than $21 billion. By contrast, the largest transaction in 1999, Aegon’s purchase of Transamerica, was valued at $9.7 billion.
Among the top ten insurance-related transactions, six were in the property/casualty sector and two were in the life sector. None of the top ten deals in 1999 involved a health/managed care company, although many industry analysts speculate that a number of potential transactions in this sector are imminent.
In 1999, foreign companies continued to acquire U.S. insurers, while U.S. purchases of foreign companies declined. Three of the top ten transactions involved European buyers of U.S. firms, and a fourth involved the purchase of a U.S. firm by a Bermuda-based company. Only one of the top ten transactions involved the purchase of a foreign insurer by a U.S. buyer.
While the market for public equity offerings was relatively strong in 1999, there were few insurance-related transactions. In 1999, there were 10 insurance-related IPOs, versus 15 in 1998. There were only two insurance-related secondary offerings in 1999, versus 13 in 1998.
The IPOs raised $659 million, down 57 percent from the $1.5 billion raised in 1998 and down almost 90 percent from the $5.9 billion raised in 1997. Secondary offerings raised $1.8 billion in 1999, down 60 percent from the $2.7 billion raised in 1998, and down almost 90 percent from the $18 billion raised in 1997.
“Except for the demutualizations, the IPO market came to a dead halt for the insurance industry during 1999,” said Guy Yeakley, an associate with Conning. “Last year the market valued insurers very low. The insurance industry was considered Old Economy and was cast aside in favor of technology offerings.”
For more information on purchasing the complete study, call (888) 707-1177 or visit www.conning.com.
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