Trend for insurers to outperform following major M&A deals picks up pace

ARLINGTON, Va., Dec. 01, 2016 -- The margin by which insurers are outperforming their competitors in terms of share price following major acquisitions has increased by almost four times since 2008, according to new research by leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ:WLTW) in conjunction with Cass Business School and Mergermarket.

Insurers making acquisitions outperform their subindustry index

Findings from the Insurance M&A Success Tracker indicate all deals with a value of more than $50 million conducted since 2008 show that insurers making acquisitions delivered significantly better share price performance than their peers did in the 12 months surrounding the deal.

On average, acquirers have outperformed their insurance subindustry index (pertaining to a specific line of insurance) by 3.7 percentage points since 2008, and this pattern has steadily become more pronounced, with acquirers outperforming their index by an average of 12.5 percentage points in 2015 alone.

This trend has been driven by outperformance in the six months following announcement. In the past three years, acquirers have traded at 1.1 percentage points higher than their index from six months before announcement to one day after, with a further 7.4 percentage points of outperformance occurring in the six months after the deal is announced. This trend replicated in 2015, with 9.7 percentage points of the total outperformance happening in the second phase, against 2.8 percentage points initially.

A chart accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/cfa5c5f6-0ed9-4926-969b-65c9d5569e87 

“While our figures show that these deals ultimately pay dividends, it takes time and effective post-deal actions to garner the best results,” said Jack Gibson, global M&A lead, Willis Towers Watson M&A Risk Consulting. “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 research findings suggest there are likely a number of factors driving this outperformance. First, there have been numerous deals in the life insurance sector where firms have acquired specialist blocks of business from peers — closed life books are one example where a particular skill set is required — and then been able to add value through their expertise and experience running such assets.

“The deal goes to a firm that is able to provide the right focus and increase value through the way 
in which the business is managed,” added Gibson. “In effect, the same block of business can be worth substantially more under the new owner than the old one.”

Another key factor driving outperformance among acquirers has been their expansion into new territories. For example, a number of companies highlighted in the research are looking to increase their presence in emerging markets across Asia, Eastern Europe and South America.

“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 Gibson. “Insurers need a solid deal rationale that’s well explained and then well executed. Both parts are essential if you are to convince shareholders.”

About the research

All analysis was conducted from the perspective of the acquirer and based on standardized analysis. Share price performance was measured as percentage change in share price and is compared to MSCI Indices. The analysis is performance over two time periods: from six months prior to the announcement date to one day post-announcement, and from six months prior to the announcement to six months after the deal completed. Only completed M&A deals with a value of at least $50 million are included in this research. All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

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