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Lessons to Remember as M&A 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:
 | When evaluating potential opportunities, stick with
your core business. Many institutions have excess liquidity
even now and are may consider adding “portfolio plays” to
their book of business. That’s fine for businesses that
are already successfully operating a portfolio of companies.
For those that aren’t, 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. |
| 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. |
| 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. |
| 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. |
| 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 onto current shareholders. |
| 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. |
| 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. Revalidate 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.
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These are just a few of the lessons the Nolan Company has
learned. 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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