Judging M&A: why strategic objectives must be delivered

27-12-2016

The executives driving any merger or acquisition must set out clear strategic objectives and deliver on them—or risk getting fired in the aftermath of a deal if they are not met, according to Paul Clark, partner and managing director at Boston Consulting Group and a specialist in change management, 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’, Clark says that it is crucial that insurers should be clear and transparent on their objectives before entering into a deal, and in what direction they will take the business after it.

He believes that a majority of M&A underperform and fail to achieve their initial objectives—which can be perilous for the executives driving the deal.

“One of the quickest ways for a CEO to get fired is to buy another business and then mess up the integration,” says Clark.

While objectives will differ from acquirer to acquirer, identifying the rationale behind the merger is very important, whether that is to increase growth, to increase innovation or to complement each other’s existing position in the market, says Clark.

For two companies coming together, Clark suggests that one company may sell products through the other’s distribution, or there can sometimes be a geographical coverage that can fill a gap.

“If two insurers are coming together where one has a strong position in the London Market and the other very good technical capabilities, they may be looking to sell more product into the London Market. Then you would look to see whether revenue has increased,” he says.

“If they were both growing at 3 percent before, and from years two, three and four after the integration the combined business is growing at 5 percent, you say great—they’re now growing faster.”

Equally, if the objective is to reduce costs, if costs have decreased by 20 percent after two years and revenue is still holding firm, that could also be considered a success.

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.

Boston Consulting Group, North America, Paul Clark, Insurance, Reinsurance, M&A, London Market, London, UK

Intelligent Insurer