Press Release

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

December 1, 2016

LONDON, 1 December 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 Willis Towers Watson in conjunction with Cass Business School and Mergermarket.

Findings from the Insurance M&A Success Tracker, based on analysis from Willis Towers Watson and Cass Business School, of all deals with a value of more than US$50m conducted since 2008, show that insurers making acquisitions delivered significantly better share price performance than their peers in the 12 months surrounding the deal.

On average, acquirers have outperformed their insurance sub-sector index by 3.7 percentage points since 2008. And this pattern has steadily become more pronounced, with acquirers outperforming their sub-index by an average of 12.5 percentage points in 2015 alone.

This trend has been driven by an 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 was announced. This was replicated in 2015, with 9.7 percentage points of the total outperformance happening in the second phase, against 2.8 percentage points initially.

Figure 1: Insurers making acquisitions outperform their sub-industry index
(Showing median numbers of percentage points higher than sub-industry index)

Insurers making acquisitions outperform their sub-industry index

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 research findings suggest there are likely to be a number of factors driving this outperformance. First, there have been a significant number of 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 skillset is required – and then been able to add value through their expertise and experience running such assets.

"The book goes to a firm that is able to focus on it and increase value through the way in which they manage it. In effect, the same block of business is worth more under the new owner than the old one," noted Fergal O'Shea.

Another key factor driving outperformance among acquirers, according to Willis Towers Watson, 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 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 Fergal 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."

About the research

All analysis was conducted from the perspective of the acquirer and based on standardised 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 US$50m 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.