How Intact CEO views the M&A landscape

M&A transactions involving large-value brokerage deals do not reflect a trend and likely aren’t sustainable, Intact Financial Corporation CEO Charles Brindamour suggested during a recent earnings call.

“If I go towards distribution, which are smaller transactions, I think we’ve seen a number of eye-popping transactions that we don’t think reflect a trend because we don’t think the sort of valuations we’ve observed in larger transactions is actually sustainable,” Brindamour said during Intact’s 2023 Q2 call Aug. 3.

“But we’re able to do small- to mid-sized transactions in the range where we can generate double-digit returns…”

Brindamour was responding to a question from an analyst about what the M&A landscape looks like right now from both a broker and carrier perspective. He didn’t elaborate on any specific deals.

Overall, Brindamour sees “a broad range of opportunities, quite frankly, where we operate at the moment.”

When considering a prospective deal, the first thing Intact looks at is outperformance. “We’re very focused on creating outperformance where we operate,” Brindamour said. “And when we feel the outperformance is there, we’re there to deploy capital.

“I would say we outperform in most markets, maybe not in U.K. personal lines at this stage,” he said. “But Canada, U.S. and U.K. commercial lines, we have solid outperformance in place.

“If I look at that environment, I see that there’s a number of opportunities at the moment.”

In Canada, Intact reported an operating direct premium written growth of $4.27 billion in 2023 Q2, up 6% from 2022 Q2.

Canadian personal auto operating DPW were up 6% year-over-year to more than $1.7 billion in 2023 Q2, while personal property premiums increased 5% to almost $1.1 billion. Canadian commercial lines operating DPW also increased, up 6% to nearly $1.5 billion in the latest quarter from last year.

During the call, Brindamour pointed to operating income per share growth as a key indicator. “The beauty of that measure as a measure of success is that it captures three levers: one, customer growth, one-by-one; two, margin expansion; and three, how [well you use] capital, and that includes capital deployment through M&A.”

Louis Marcotte, Intact’s executive vice president and chief financial officer, added that the insurer’s balance sheet is strong, so Intact can conduct an M&A transaction anytime. “There’s no constraint internally to deploy capital and effort on M&A if something comes up.”

Marcotte also discussed Intact’s RSA acquisition during the earnings call. He said value creation from the deal — which occurred two years ago — has exceeded expectations.

“We estimate that annual RSA synergies has hit a run rate of $315 million in the quarter,” Marcotte said. “We remain well on track to achieve our target of at least $350 million and approximately [a] 20% net operating income per share increase by mid-2024.

“The estimated [internal rate of return] is still north of 20%.”

Policy conversion in all specialty lines in Intact’s Johnson affinity business “is substantially complete and retention levels remain high,” Marcotte added. He expects policy conversions to be largely completed in 2024, with claims conversion and systems decommissioning still estimated to be completed in 2025.

 

Feature image by iStock.com/guvendemir