Brand strength will drive M&A in next three years

Brand strength will be the main driver of M&A activity in re/insurance in the next three years, reflecting the transition to digital sales which require a strong, recognisable brand, according to a survey by Willis Towers Watson in conjunction with Mergermarket.

The survey showed that fewer deals are being completed at the moment – something the report blamed on political uncertainty – but those that do complete are of a higher value. Seven out of ten respondents (68 percent) said that brand would be an important driver going forward.

The survey shows the most powerful motivation for undertaking an acquisition over the next three years will be to gain a strong brand. This reflects the impact that technology and the internet in particular have had on the industry, with the web being the primary distribution network for companies, the survey’s authors noted.

The transition to digital sales requires a strong, recognisable brand. According to Willis Towers Watson, this can be just as important as competitive pricing, reinventing the company through a major acquisition and rebranding to reintroduce the company to consumers. Lower rates of insurance among millennials also mean that insurers must work harder than ever to win business and this increases the value of effective branding.

“M&A in the insurance industry will be driven by the need to create synergies, build brands and tackle technological advances,” said Fergal O’Shea, EMEA life insurance M&A leader at Willis Towers Watson. “However, as our survey shows, companies will be searching for quality over quantity.”

The data shows that global deal value across all sectors increased by 8.4 percent in the first half of 2017 while volume sunk by 12.3 percent. This trend is being replicated in the insurance sector, with deal volume falling by 17.7 percent from H1 2016, while value has increased by 170 percent over the same period. The majority of respondents (78 percent) expect to undertake one to two purchases in the next three years, compared with 90 percent that made one or two acquisitions in the past three years.

This move towards larger and megadeals can be seen in the split of deal sizes. In 2016, there were only 14 deals worth more than $500 million. In the first half of 2017, there have already been 11. This trend corresponds with the survey findings, which show that 17 percent of firms expect at least one of their acquisitions over the next three years to be a major deal compared with 8 percent that have made one such acquisition over the previous three years.

Firms that have been most acquisitive in the past anticipate the most future buy-side activity. Of those firms that have made between one and two deals in the past three years, 81 percent expect to make the same number of purchases in the next three years. Of those that made between three and four deals in the past three years, 44 percent expect to make three or more deals in the next three.

“This seems to signal that activity will continue to be driven by serial acquirers and those that have been active in recent years, as opposed to new entrants that have sat out the past few years finally sticking their toe in the water,” said O’Shea.

“A number of companies have made large acquisitions in the past two years and have been in integration mode. Once that completes, they can turn from being internally focused back to M&A.”

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