Judging M&A: what an analysis of share prices can show post a deal

Based on historic trends, insurers engaging in M&A are increasingly outperforming their competitors in terms of share price development, according to a report published by Willis Towers Watson, in collaboration with Cass Business School and Mergermarket: Measuring the correlation between acquisitions and share price performance.

The findings of the report are included in a special feature by Intelligent Insurer on how the success—or failure—of such deals should be judged.

The feature, called ‘A match made in … how re/insurance M&A should be judged’, looks at how share prices may be used to determine the success of an acquisition in the months and years following a deal.

The report found that the margin by which insurers are outperforming their competitors in terms of share price following a major acquisition has almost quadrupled since 2008.

Analysing all deals with a value of more than $50 million in this period, Willis found that the acquirers had delivered significantly better share price performance than their peers in the 12 months surrounding the deal.

On average, acquirers outperformed their insurance sub-sector index by 3.7 percentage points since 2008.

The study showed that the pattern has steadily become more pronounced over time, with acquirers outperforming their sub-index by an average of 12.5 percentage points in 2015 alone.

Fergal O’Shea, EMEA life insurance M&A leader at Willis Towers Watson, says: “While our figures show that these deals ultimately pay dividends, it takes time to garner results.

“This lack of immediate reward coupled with the uncertainty on day one around a big deal are among the reasons that investors have been slow to acknowledge the benefits of M&A in the insurance sector.”

The full feature, which can be viewed by clicking here, also examines how the ratings of companies can be examined as a measurement of a deal’s success and includes an expert in change management who argues that a deal must have very clear objectives to be successful.