An aggressive merger and acquisition policy does more than just increase market presence – it boosts share prices, according to recent industry analysis.
If you are buying, your share prices are outperforming the industry average, states new analysis from Towers Watson and Cass Business School. However, two years after deal completion, there was little or no average valuation premium compared with insurance stocks overall, according to the analysis
“These figures suggest that the global investor community clearly sees a rationale for M&A activity across much of the insurance sector,” says Andy Staudt, the P&C insurance M&A leader for the EMEA region at Towers Watson, “but still has to be persuaded on the track record of some companies in delivering their projected post-deal financial results.”
Among those companies that were actively acquiring, share prices typically outperformed the industry average by an excess 4.2 percentage points in the months before and after the transaction was completed.
The short-term picture was similar for life, property and casualty and composite businesses, the firm noted. (continued.)
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The analysis focused on major acquisitions completed by stock market-listed insurance companies worldwide between January 2008 and December 2013.
And according to the Towers Watson data, companies purchasing within their country realize the biggest bump in share price outcomes, with a typical result in an excess return to investors of 8.3 percentage points in the short-term and 7.9 percentage points in the two-year timeframe following the completion of the deal.
“This supports the idea that it’s easier to generate returns in a market you understand well,” says Staudt. “It also corroborates the finding from our recent survey of over 250 global insurers’ M&A intentions of a ‘home bias’ when looking at the relative attractiveness of various markets.”
For related stories on mergers and acquisitions, see:
Major takeover rocks Canadian market; and
Hub expands North American presence.
