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Article
LESSONS TO REMEMBER AS MERGER AND ACQUISITION ACTIVITY INCREASES
By
Steve Discher
Executive Vice President There have
been countless acquisitions in the insurance and financial services
industry already this year. Slow organic growth, unpredictable
investment earnings, failed institutions, and attractive acquisition
targets are escalating M&A priorities on the executive agenda. Given
the slow and extended economic recovery, M&A is likely to remain a
hot topic for many for the foreseeable future.
Most carriers deal with M&A
activities only occasionally. For those carriers who are quickly
being thrown into the deep end of the M&A pool, we have a few
suggestions and lessons learned from our long history of advising
clients in evaluating, selecting, and implementing mergers and
acquisitions. These include:
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When evaluating potential
opportunities,
stick with your core business. Many institutions have
excess liquidity even now and may consider adding “portfolio
plays” to their book of business. That’s fine for businesses
that are already successfully operating a portfolio of
companies; however, those that aren’t should be wary of
venturing into uncharted territories, whether they are lines of
business that require a dramatically different understanding of
risk, underwriting, claims, or distribution. Experimenting with
diversification can be a good thing, but be measured in how much
is pursued and decide how much you are willing to put at risk. |
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Be prepared to move quickly. Many of your
peers and competitors are reviewing the same opportunities, and
those who can act quickly, accurately, and decisively will win.
Those who overanalyze M&A options may find themselves watching
opportunities pass them by—especially
now given the heightened interest and need to grow. |
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Don’t be afraid to
give serious consideration to businesses with seemingly
unattractive operations. Often, operations that are
not run to your standard offer the greatest opportunities for
improved performance and profits. |
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Be diligent in your due diligence. The need to act
quickly can also lead to overlooking key reviews. This is not
limited to deal evaluation, but includes final terms and
conditions and operational and cultural attributes. |
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Leverage your strong cash position. Especially
today, going to the capital markets for funding may slow you
down and have you looking for returns that would otherwise be
better passed on to current shareholders. |
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Consider IT integration issues carefully before,
during, and after the deal. Before a deal can be struck,
accurate and timely financial, HR, and operational data is
needed. IT compatibility issues can also slow potential business
integration efforts and reduce longer-term integration benefits. |
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Line up the right team to execute with speed and
precision. Integration is hard work and requires experienced
resources to realize the benefits expected from a merger or
acquisition. Periodically review your pre-integration decisions
and their rationale to ensure that the team hasn’t drifted from
your original intent. Re-validate your assumptions. |
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Finally,
don’t underestimate the challenges of cultural integration.
Substantial evidence indicates that the main reason mergers and
acquisitions flounder is a failure to integrate company
cultures. Analytically speaking, you can pick the best target,
but if you don’t have the right end-state culture, you won’t
integrate and will likely be challenged in the long term.
Consider your own management style and what you expect to see. |
These are just a few
of the lessons the Nolan Company has learned. For more, visit us at
www.renolan.com. We are pleased
to be helping so many fine clients today in their pursuit and
implementation of merger and acquisition opportunities. Let us know
if a conversation about the need for speed might be valuable to your
organization by writing to me at
steve_discher@renolan.com. |
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