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 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.
  • 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 on to 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. Re-validate your assumptions
  • 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. 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.