Carve-outs factor into two-thirds of $1B-plus deals in 2020
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Insurers are using divestitures to help them re-focus on core operations, according to a report Tuesday from consultancy Bain & Co.
These targeted disposals, or “carve-outs,” have accounted for 70% of insurance mergers and acquisitions over the past five years, Bain said.
“The year 2020 continued a multiyear trend in which global insurers are streamlining their businesses by simplifying operations and redefining themselves with a narrower scope and stronger core,” Bain said.
In 2020, 67% of deals greater than $1 billion were of the “carve-out” variety, with 33% stand-alone transactions, Bain data showed.
Axa SA, for example, following the 2018 purchase of XL Catlin Ltd., completed the sale of its Poland, Czech Republic and Slovakia businesses to Uniqa Insurance Group AG in October 2020, Bain said.
Other acquisitions allowed buyers to build and strengthen core businesses, as with Aon PLC’s $30 billion acquisition of Willis Towers Watson PLC, Bain said.
Private equity buyers have shown continued interest in insurance acquisitions, Bain said. “There seems to be no end to private equity’s appetite for insurance companies,” with private equity accounting for 14% of deal volume in 2020.
Elsewhere, the number of private technology investments by insurers fell to 96 in 2020 from 132 in 2019, data showed even as the total number of investment deals grew to 377 from 314 in 2019.
Bain expects the trend of paring non-core operations will continue into 2021.
We anticipate that legacy insurers will continue their focus on cleaning up and reinforcing their core portfolios over the near term,” Bain said. “Peripheral businesses in portfolios will continue to become the topic of exploratory divestiture conversations,” which in turn “will create attractive acquisition opportunities for companies looking to strengthen their market positions or pursue adjacencies.”
