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MERGER AND ACQUISITION ACTIVITY IN THE INSURANCE INDUSTRY SLOWS FOR FIRST TIME IN RECENT MEMORY!
Foreign Firms Willing to Outbid Domestic Companies
HARTFORD, Conn.--(BUSINESS WIRE)--Aug. 30, 1999--In a new study just released on insurance mergers & acquisitions and public equity offerings for the first half of 1999, Conning & Company reports an overall 71% decline in M&A transaction value and a 9% decrease in the number of transactions compared to the first six months of 1998.
The value of merger activity in the first half of 1999 slid to $30. 9 billion -- down from $107.9 billion in the same period last year, with only one mega-deal announced. In 1998, there had been numerous blockbuster deals.
The Conning study, ''Mergers & Acquisitions and Public Equity Offerings Midyear 1999 Review: A Tough Act to Follow,'' reports that this year's letdown can be attributed to more than just a digestion process after last year's record deals. For the limited number of deals where data are available, it appears that pricing is down from 1998, particularly for acquisitions by domestic companies.
''The insurance industry is viewed by many as a mature market that does not have a lot of room to grow,'' said Nancy Carini, Vice President at Conning & Company and author of the study. ''When you add the fact that many public companies have recently reported weak earnings and insurance stocks have been underperforming the market, potential buyers have a lot more negotiating power to drive down the asking price.''
Carini also noted that the tenuous status of HR 10, the bill that will decide whether banks and insurance companies will be allowed to acquire one another, has kept some players on the sidelines.
This climate explains why American companies, despite the strong capital positions built over the past decade, do not appear willing to pay premium prices for acquisitions. However, European countries intent on gaining footholds in the competitive American insurance industry -- appear willing to outbid domestic companies and pay premium prices. The three largest acquisitions during the first half of 1999 saw foreign companies purchase domestic insurers.
Two sectors where M&A activity is on the rise are distribution and insurance services. Distribution was the only sector that saw an increase in the number of transactions -- up 27% -- as companies focus on broadening their channels of distribution. About half of this activity was from agencies buying other agencies; banks buying agencies accounted for 16%.
Announced transaction values in the services sector were up 287% compared to the first half of 1998. Technology/software -- oriented acquisitions led the charge as service companies continue to take the field to assist the insurance industry with needed upgrades.
A similar slowdown in inactivity was also apparent in first half insurance-related equity offerings. The ongoing momentum of the stock market in 1999 has not carried over to the insurance sector; only eight issues (six IPOs and two secondaries) were completed during the first six months of 1999 compared to 23 in 1998. Indeed, since the beginning of July 1998, only 13 insurance - related offerings were priced, a drastic fall off from the pace of the previous 12 months.
The Conning study, ''Mergers & Acquisitions and Public Equity Offerings Midyear 1999 Review: A Tough Act to Follow'' is available from Conning & Company for $395 by calling toll free 888/707-1177 or 860/520-1245 or can be purchased through the company's Web site at www.conning.com. A complete listing of all Conning Strategic Studies can also be found by visiting the site. |
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