Generali sets up €3bn war chest for M&A to build foothold in growing markets

Italian insurer  Generali could put as much as €3 billion into mergers and acquisitions (M&A) over the coming three years to bolster its position in insurance or asset management across a host of core existing markets or high-growth developing market alternatives, officials said Wednesday, December 15.

"It's a good balance between remuneration for shareholders and investing in growth," group CEO Philippe Donnet (pictured) told investors and analysts during an online investor day presentation of a new three-year strategy. Of an estimated €8.5 billion of anticipated net cash flow at the holding level, Generali will put €5.2 to 5.6 billion to dividend, €0.5 to 0.7 billion to internal investments and €2.5 to 3.0 billion to M&A, the strategy presentation showed.

In M&A as in all organic growth, the target is to "strengthen our leadership in Europe and our foothold in developing markets," Donnet said. Developing markets chiefly means unspecified Asian markets, officials suggested.

Incoming cash from any life segment portfolio disposals might also be redeployed into M&A to push the total sum above the €3 billion target "if we find the right project," Donnet noted.

"In insurance, we will continue to focus on the markets where we already are: we wish to further strengthen our positions, our leadership positions" and craft M&A deals where synergies can create value, he said.

"We will do that of course in Europe, but also outside of Europe in growing markets we have selected, mostly, obviously, in Asia," he said.

M&A could also be an option for Generali to build out its operations in asset management, a key element of a strategy for realigning its life segment business and adding to its fee-earnings capacity.

"In the asset management world, the geographic scope is wider, because as we are becoming a very global asset management group, [and] we obviously need to be present and increase our presence," Donnet said. In the UK, in the US market and without excluding Asia - this is the geography for M&A."

The litmus test for every deal is said to focus on "long-term value creation for all stakeholders" which Donnet appears to understand as a waterfall of tests from strategic fit of business lines, through geographical fit, a cultural fit, "disciplined" financial metrics and finally the view to execution risks, he indicated.

Generali continues to highlight the value in its more recent deal for Cattolica as an opportunistic move to solidify position on key markets. That deal has yet to proceed to full merger. A recent move into talks with Credit Agricole for its health insurance unit La Medicale, in turn, proves Generali's ability to work proactively to secure sensible deals. Those talks were first initiated six years ago, management claimed.

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