Analysts predict more M&A activity, but not without link to organic growth

Insurance equity analysts expect a significant increase in property and casualty (P&C) mergers and acquisitions this year, according to findings of a global survey by Accenture (NYSE: ACN).
Conducted by Institutional Investor Market Research Group as part of Accenture’s High Performance Business research, the survey queried more than 100 leading insurance equity analysts in 14 of the world’s largest insurance markets, including three Canadian analysts.
More than two-thirds (71%) of all P&C analysts surveyed said they anticipate a “significant increase” in merger and acquisition (M&A) activity in 2008.
At the same, the findings indicated significant differences by geography: P&C analysts in North America were three times as likely as those in Europe to predict a significant increase in M&A activity.
“The logic of consolidation within the property and casualty industry, particularly in North America, may be gaining favor as the economy slows and as rates soften,” said John Del Santo, managing director of Accenture’s insurance practice in North America. “However, our research suggests analysts might not fully value these transactions without a clear linkage to organic growth or until efficiencies are realized.”
P&C analysts globally attached modest importance to M&A in terms of earning superior ratings, but they widely favored organic growth:
less than half (45% percent) ranked M&A among the most valuable uses of capital;
two-thirds (67%) said that M&A within mature markets is important or critical to earning superior ratings over the next three years, compared with 84% who said the same of organic growth; and
one-third (33%) described M&A within mature markets as “unimportant” to earning superior ratings over the next three years, compared with 16% who said the same of organic growth.
“M&A winners will focus on rigorous deal discipline and early post-merger integration planning in order to quickly realize synergies and demonstrate a path to profits,” Del Santo said.