Thursday 01 December 2016 4:00 am

This is why insurers should be doing more M&A

Insurers that complete an M&A deal are flying ahead of their peers.

A year after agreeing a deal, the share prices of insurance companies have been outperforming their competitors', according to research by Willis Towers Watson, the Cass Business School and Mergermarket.

The group looked at all M&A deals with a value of over $50m conducted since 2008. In terms of their share price, insurance firms that went for an acquisition outperformed their competitors by 3.7 percentage points during that time.

Fergal O'Shea, EMEA life insurance M&A leader at Willis Towers Watson, said: "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 why investors have been slow to acknowledge the benefits of M&A in the insurance sector."

The researchers said acquirers were getting a competitive edge for a number of reasons. Firstly, many deals involved the acquisition of specialist businesses. This means the buyer can gain a particular expertise through running the business it has bought, thus increasing its own value.

In addition, many buyers are expanding into new parts of the globe through making acquisitions. Several companies that have performed well after completing an M&A deal were moving into emerging markets, such as Eastern Europe, South America and Asia.

“While there is always genuine risk and uncertainty around a deal, a certain amount of this could be assuaged if companies communicated the benefits of a deal more robustly,” said O’Shea. “Insurers need a solid deal rationale that’s well explained and then well executed. Both parts are essential if you are to convince shareholders.”