U.S. Is Leader in Merger, Acquisition Activity Worldwide: Clyde & Co.

September 11, 2012

Merger and acquisition trends in the United States trended upward from 2009 to the first half of 2012, a new industry report reveals. So far the U.S. remains the most active country for mergers and acquisitions overall accounting for around 32 percent of corporate transaction in the insurance sector during this time period.

The second annual “Corporate Insurance M&A – A Global Overview” report, released by the corporate insurance practice at Clyde & Cos., also shows that at the end of June 2012, only 80 transactions had been completed in the United States, compared to 106 in the second half of 2011 and 101 in the same period last year. This trend reflects the fact that global deal volume was down across the board during this period.

Overall, the Americas are leaders worldwide and account for 52 percent of global M&A activity in the insurance sector over the past 12 months, the report said. This has been driven predominantly by the United States as well as increased activity in Latin America.

Asia Pacific has seen its share of global M&A activity drop from a high of 24 percent in the first half of 2011 to 8 percent in the first six months of 2012, according to the report.

Europe saw the largest drop in the volume of insurance M&A deals.

Although Europe remains neck and neck with the Americas in terms of the number of deals completed over the last three and a half years – each accounting for 42 percent of transactions in the period – it has fallen back from its leadership position in 2009 and 2010, and 2011 saw a pronounced decrease in activity which has continued into the first half of 2012, the report said. “There was a 21 percent fall in deals done between 2009 and 2010 – and a further 18 percent decline in 2011.”

“As companies continue to operate in an economic environment that is struggling to recover from the persistent effects of the global financial crisis, coupled with ongoing challenges presented by the situation in the Euro zone, they remain understandably cautious about M&A,” said Robert Ansehl, regional head of Clyde’s Corporate Insurance group in the U.S. “Any transaction will be expected to deliver an immediate return while, at the same time, maintaining enterprise risk management is a priority.

Ansehl said that companies should avoid exposure to additional threats such as credit, market, liquidity, currency, interest rate, counterparty or duration risk.

“In 2012 there were a number of drivers behind the deals that were being done; buyers looking to acquire some specific capability in terms of product or distribution, seeking growth in new markets (rather than trying to gain scale in associated economies) or making alternative use of capital,” Ansehl said.

Analysts and investors are judging potential deals much more stringently on strategic fit, the report said.

“The key criteria are how close to the core business is the acquisition, whether the deal will be accretive to earnings per share, make a return on invested capital and the ease with which planned synergies will be achieved,” Ansehl said.

If there is not a deal that fits, shareholders are putting pressure on management and boards to return capital rather than devote it to mergers and acquisitions. As a result, many insurance companies are engaging in share buy-backs rather than reinvesting excess capital in their core business.

“Despite the relatively sluggish start to 2012, recent investor relations calls by some insurers have been much more upbeat about M&A prospects going forward. There are a number of indicators that suggest that the number of corporate transactions could pick up as the year progresses including; pricing shifts in some lines of business, legislative changes on capital requirements and historically low valuations – with many insurers trading at a discount to book value.”

Source: Clyde & Co.

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