Vast majority of insurance companies surveyed globally are planning M&A activity in 2017, primarily driven by need to transform business and operating models
New York, NY (Mar. 20, 2017) – Expect 2017 to be a year of deal making in the insurance industry, according to a new report released today by KPMG International, with 84 percent of insurance companies surveyed planning to make between one and three acquisitions in 2017, while 94 percent plan at least one divestiture. Two-thirds of insurers said they expect to undertake a cross-border acquisition this year.
According to the report, The new deal: Driving insurance transformation with strategy-aligned M&A, 33 percent of insurers say transforming their business model will be the primary driver of acquisitions in 2017, with an equal percentage citing enhancing their existing operating model and transforming their operating model as the motivators for deal activity.
“Insurers are clearly hungry for good M&A opportunities,” said Ram Menon, Global Lead Partner, Insurance Deal Advisory with KPMG in the US. “They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives.”
Partnerships are also viewed as critical for operational transformation, with 87 percent of insurers indicating they will partner for new operating capabilities, while 76 percent say they will partner to access new technology infrastructure.
Based on a survey of 200 global insurance decision-makers conducted by Mergermarket on behalf of KPMG International earlier this year, the US is identified as the top national destination for acquisitions, followed by China. But regionally, Asia Pacific dominates, with 47 percent looking at the region for acquisitions, more than twice the percentage for North America. Western Europe is seen as presenting the most divestiture opportunity.
Despite the strategic need for business transformation, the report finds that many insurers continue to take an opportunistic approach to M&A. Just 47 percent of those insurers with dedicated M&A teams say their deal identification objectives are aligned to their corporate strategy. Thirty-seven percent admit their approach to deal making is still largely reactive.
“If you are using M&A to effectively transform your business, you can’t just jump at opportunistic deals, you need to be much more strategic,” noted Ram Menon. “Insurance organizations need to make investments that deliver on the longer-term strategy for the organization. And that is where the big challenges will lie.”
The report suggests that insurers are taking a number of paths to secure transformative deals. Corporate venture capital (VC), in particular, is gaining traction with 62 percent of insurers saying they are either already active or currently setting up a corporate venture capability as a way to build technical capabilities. More than a quarter of the existing VC funds claim more than US$1 billion in allocated funding.
“In this environment, the key to M&A success is to align financial, business and operating models so that you can achieve clarity about the markets and geographies you wish to play in and how you will win,” noted Matthew Smith, Global Strategy Group, Insurance Sector Lead, KPMG in the UK. “You must also be prepared to analyze your capabilities in the areas of due diligence and targeting in order to understand how to extract maximum value over the medium term and how the target’s capabilities complement your own.”
The New Deal: Insurance transformation with strategy-aligned M&A
Greater alignment between M&A, corporate development and strategy needed to drive long-term value from deal activity for insurers
New technologies, new competitors, new regulations and changing customer behaviors are creating tremendous opportunities, and posing significant risk to legacy insurance business models. This is true structural change, not just a cycle. To succeed in this dynamic environment, organizations are reevaluating their portfolio of business and rationalizing their global footprint to strategically determine ‘where to play’ and ‘how to win’ in the future. One of the immediate consequences of this trend is the expected rise in deal activity.
To find out how this shift towards strategy-aligned M&A is influencing deal activity, we commissioned Mergermarket Group to interview 200 insurance M&A decision-makers across all segments and regions.
In ‘The New Deal’ we explore the need for greater alignment between corporate development, M&A activities and corporate strategy. Interviews with leading insurers globally confirmed that this approach will be critical to evaluating the ‘strategic fit’ of their M&A activities, partnerships and venture capital investment opportunities.
As insurers formulate their M&A strategies for the year ahead, we believe the following trends will shape their deal activity:
- Cross-border activity will increase as insurers worldwide seek to diversify their geographic risks and earnings profile.
- Portfolio rationalization and strategic repositioning of businesses by larger insurers is expected to drive global M&A activity.
- Greater alignment of corporate strategy and M&A objectives will provide an edge to buyers as competition for deals rises.
- The hunt for innovation will increasingly shape insurers’ rationale for doing deals.
Our research suggests that this will require a different mindset. In particular for those lacking the internal capabilities and an enterprise-wide M&A playbook to enhance and deepen their due diligence, deal evaluation, and post-deal integration/separation processes. The report provides insight into how mergers and acquisitions (M&A) could help the industry drive future growth and establish new relevance with consumers, investors and shareholders.
To read more, download the full report.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s independent member firms have 189,000 professionals, including more than 9,000 partners, in 152 countries.