Tokio Marine would jump at major M&A deal to diversify its game, but valuations seem hefty: CEO
Tokio Marine would gladly proceed to further large-scale M&A in a bid to further its global risk diversification, but might find it difficult to find properly priced targets in current market conditions, chief executive officer (CEO) Satoru Komiya said at his company's Investor Day.
"If there is a good acquisition that diversifies risk and contributes to increased shareholder value, we will execute on it," Komiya said.
"And if there is nothing available that meets our standard, we will give funds back in a disciplined manner," the CEO he vowed.
Those standards include a good cultural fit, high profitability and a "solid business model," the accompanying presentation indicated.
Eventual purchases must also pass a hurdle rate, which Tokio Marine sees as roughly 7 percent cost of capital plus risk premium and interest rate spread to host country, the presentation showed.
Current M&A pricing indications might not pass that test, Komiya indicated.
"Even if there was a good opportunity, I think that valuations are too high at this moment," he told analysts, citing the flurry of post-pandemic efforts in the industry to reshape and transform business focus. Nothing is in Tokio's immediate sights, he admitted.
But appetite for more global risk diversification will keep Tokio Marine vigilant on M&A opportunities. So-called ‘bolt-on’ deals could provide a likely structure for growth of some units, especially some recent additions to the group in North America, officials indicated.
"There is still room for global risk diversification," Komiya said. "Our company constantly monitors the environment using long- and short-lists and we are making every effort to be prepared." Industry reshufflings could create “chemical reactions and cosmic collisions” at any point.
Current hunting efforts are somewhat hampered by lingering pandemic restrictions, which impede communication between industry leaders, Komiya added.
Disposals also remain an option. Asset reviews "will continue to be an important issue for us," he said.
