By Alex C
Securing new operational license for beginning insurance business in most markets has become increasingly difficult. However, it has now become a non-option, a situation that has led to a growing number of Mergers and Acquisitions (M& A) as the working strategy for new entrants into Nigeria’s Insurance industry.
Buttressing this view is the recent acquisition by Old Mutual of Oceanic Insurance belonging to Eco Bank. Until now, there were some foreign players in the industry. These include Sanlam of South Africa in FBN Insurance; NSIA in Adic Insurance; Metropolitan Life in UBA Metropolitan.
Within the local market also are acquisitions seeing the likes of Custodian and Allied taking over Crusader plc; ARM taking over CrystaLife; Capital Alliance taking over SpringLife and many others.
CRE in its new report into future insurance mergers and acquisitions (M&A) trends from KPMG International stated that insurers at global levels are rethinking their business model in the wake of economic and regulatory changes and focusing on sustainable underwriting in the face of continuing low investment yields.
“As insurers seek to secure profitable growth, enter new markets and rationalise non-core operations, M&As are an increasingly important element of the overall strategy. M&A activity in the insurance sector continues to be relatively buoyant, particularly for mid cap deals. Consolidation in mature markets and continued expansion in high growth markets combined with a focus on securing new distribution are driving activity, Sam Evans, global insurance transactions and restructuring lead, KPMG International noted.
The report identified 10 trends for M&A activity for insurers: Opportunities created through dramatic shifts in technology use; increasing activity and competition from private equity and non-corporate acquirers; Asia remains a competitive, heavily penetrated market but opportunities remain; continued activity expected in Latin America; Markets in Africa, Turkey, the Middle East.
Other are regulatory change continues to act as a deal catalyst; rising inbound M&A interest into mature markets; traditional insurers exit legacy segments/sell non-core books to focus on growth and capital redeployment; opportunities to create core infrastructure in high growth markets; access to data changes results in new partnerships and business models.
The report highlights the opportunities in Africa, Turkey, and the Middle East as also attracting attention.
“We expect to see a new horizon of high growth markets with countries in Africa and the Middle East attracting significant interest, prompting a rapid increase in M&A and distribution related transactions. In a reversal of recent deal flow, we expect more inbound investment to mature markets. For example, as Chinese and other investors look to capitalise on opportunities created by current economic conditions,” the report highlighted.
The continuing implementation of risk based capital and consumer protection initiatives will serve as a catalyst for change, creating investment opportunities, said the report. It pointed out that many high growth markets lacked core infrastructure to support ongoing sectoral development, including central clearing houses and data availability and integrity.
“While insurers see fresh opportunities in new markets, justifying rising pricing multiples, there are vast challenges in completing a successful M&A in an unfamiliar geography. Recently, intensified competition means that bidders must differentiate themselves from the pack and prepare offers that demonstrate value and fit for the local partner. Acquirers also face increasingly complex regulatory hurdles, which can cause significant delays or impose cumbersome post-deal operational burdens or costs, the report stated.”
The report warned that abandoned deals or problematic integration can result from a buyer’s inability to understand or navigate foreign culture and values among the seller, partners, regulators, customers and employees.
“As a result, successful buyers must gather detailed market intelligence and tap into knowledgeable local players to better appreciate on-the-ground conditions, culture and operating considerations.
“The prospective buyer should also carefully map out their M&A strategy and approach, precisely identifying underlying goals for the acquired asset and how they will achieve growth. Without such in-depth, upfront strategic reflection, buyers can find themselves invested in the wrong market, with the wrong partner, or lacking clearly defined post-deal direction,” the report added.
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