Conning: M&A activity slowing down

In a new study released on insurance mergers & acquisitions and public equity offerings for the first half of 1999, Conning & Company reports an overall 71% decline in activity value and a 9% decrease in the volume of transactions when compared with that of the first six months of 1998.

The value of merger activity in the first half of 1999 slid to $30.9 billion — down from $107.9 billion in the same period last year, with only one mega-deal announced. In 1998, there had been numerous blockbuster deals. The Conning study, entitled “Mergers & Acquisitions and Public Equity Offerings Midyear 1999 Review: A Tough Act to Follow”, reports that this year’s letdown can be attributed to more than just digestion process after last year’s record deals. For a limited number of deals where data are available, it appears that pricing is down from 1998, particularly for acquisitions by domestic companies. “The insurance industry is viewed by many as a mature market that does not have a lot of room to grow,” says Nancy Carini, vice president at Conning & Company and author of the study. “When you add the fact that many public companies have recently reported weak earnings and insurance stocks have been underperforming the market, potential buyers have a lot more negotiating power to drive down the asking price.”

U.S. companies, despite the strong capital positions built over the past decade, do not appear willing to pay premium prices for acquisitions. However, European companies — intent on gaining footholds in the competitive U.S. insurance industry — appear willing to outbid domestic companies and pay premium prices. The three largest acquisitions during the first half of 1999 saw foreign companies purchase domestic insurers.

A similar slowdown in inactivity was also apparent in the first half insurance-related equity offerings. The ongoing momentum of the stock market in 1999 has not carried over to the insurance sector, only eight issues (six initial public offerings and two secondaries) were completed during the first six months of 1999 compared to 23 in 1998. Indeed, since the beginning of July 1998, only 13 insurance-related offerings were priced, a drastic fall off from the pace of the previous 12 months.