Judging M&A: why growth is a trickier measurement of success

29-12-2016

Assessing growth as a measurement of the success of a merger or acquisition is much harder than identifying whether cost-cutting and synergies have been delivered, according to Paul Schultz, CEO of Aon Securities, speaking to Intelligent Insurer on how the success—or failure—of such deals should be judged.

In the feature, called ‘A match made in … how re/insurance M&A should be judged’, Schultz says that in the perfect deal, cost synergies can ensure that savings can be met while a good deal will also provide the companies with new capabilities and revenue streams, whether that’s through new products, innovation or both.

In terms of cost synergies, Schultz says, a lot of assumptions may be made before any deal goes ahead—but whether they come to fruition as planned is another story.

He says reinsurance spend is a good example of this. “If we look at reinsurance spend between two companies we can ask what kind of cost synergies or what kind of reduced reinsurance spend we can anticipate in year one, year two and year three,” he explains.

He adds that in some instances, it can be easy to see if a combined entity is making progress on delivering on forecast synergies and cost savings.

“For those of us who are in the industry on a daily basis it’s pretty simple to measure and observe. You generally know whether progress is being made without seeing the financial numbers, because you can see there are now two underwriters assigned to one unit, for example,” he says.

Measuring whether growth is thanks to a deal can be harder, he says.

“It’s harder to evaluate growth assumptions because if you’re bringing in new product capabilities or targeting new geographic capabilities it’s much more difficult to make assumptions as you are taking a forward-looking view on what those opportunities are,” he says.

“The time horizon becomes a very important aspect of evaluation. If you have a two-year perspective on achieving some new things or a 10-year perspective on it, that’s obviously a critical component of whether things have been successful.”

The full feature, which can be viewed by clicking here, also examines how share prices and the ratings of companies can be examined as a measurement of a deal’s success and includes an expert in change management who argues that a deal must have very clear objectives to be successful.

Aon Securities, North America, Paul Schultz, Insurance, Reinsurance, M&A

Intelligent Insurer