Zurich’s Bid for RSA May Ignite Deal Flurry in Europe: Real M&A
2015-08-05 23:00:01.3 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Sarah Jones
(Bloomberg) -- With Zurich Insurance Group AG on the verge
of pursuing its biggest acquisition in more than a decade,
Europe is poised to add to the consolidation that is sweeping
the industry globally.
RSA Insurance Group Plc shares surged almost 20 percent on
July 28 after Zurich said it was considering an offer for the
London-based provider of property and auto coverage. Zurich is
said to be raising financing ahead of a potential offer for $8.7
billion RSA, people familiar with the talks said last week.
Insurance companies worldwide have been targeted in about
$64 billion of acquisitions so far in 2015, more than double the
amount in the same period a year ago. While the U.S. and Bermuda
accounted for the lion’s share, cash-rich European firms face
the same pressures that are driving consolidation elsewhere,
raising the specter that others such as Allianz SE and Axa SA
may follow Zurich and seek bigger transactions.
“‘There is definitely scope for a similar-size deal or
even larger in Europe,’’ said Sam Evans, global insurance deal
advisory lead at KPMG in London, whose clients include both
Zurich and RSA. ‘‘The general expectation is there is a lot more
activity to come.’’
Squeezed Margins
Insurers are merging as their margins get squeezed amid
increased competition from alternative players entering the
industry, and as investment income dwindles from record low
interest rates.
Combining can help the firms cut costs, while shoring up
their positions in markets they see as important. The largest
purchase announced this year was Ace Ltd.’s agreement to buy
Chubb Corp. in the U.S. for more than $28 billion.
There has been some dealmaking within Europe. Aviva Plc
bought smaller rival Friends Life Group Ltd. for $8.3 billion
and the Lloyd’s of London market has also seen a flurry of
activity led by XL Group Plc’s takeover of Catlin Group Ltd.
Otherwise, transactions have been mostly limited to asset
disposals and smaller purchases.
Stricter European-wide regulation on the industry in 2016,
known as Solvency II, has largely quashed M&A activity in the
region amid uncertainty about how much capital insurers will be
forced to have on their balance sheets.
Once insurers get regulatory approval on their capital
models, appetite for doing deals is expected to return, say
analysts including JPMorgan Chase & Co.’s Ashik Musaddi and Mark
Cathcart at Jefferies Group.
‘‘We have argued over the past year for sector
consolidation with the conglomerates leading the way,” said
Cathcart in a telephone interview. “It only takes one to break
ranks and then everyone else will breaks ranks. I love that
Zurich might get RSA, it makes sense. M&A on the continent will
happen.”
Deal Catalyst
While Allianz and AXA, two of Europe’s biggest insurers,
have previously said they’re not interested in making large
transactions, they could be tempted if the market reacts
positively to a Zurich-RSA deal, Cathcart said.
RBC Capital’s Kamran Hossain said he sees more chance of
deals happening in the Lloyd’s sector including potentially
Novae Group Plc and Hiscox Ltd., while JPMorgan’s Musaddi said
he expects to see more activity by medium-sized players
including Belgium’s Ageas and NN Group NV of the Netherlands.
“Zurich throwing their hat into the ring would have caused
consternation at the management board level of most big
insurers,” Trevor Moss, an analyst at Berenberg, said in an
interview. “It’s a catalyst for the European insurers to at
least think about it.”
For Related News and Information:
Zurich Said to Prepare Financing for Possible RSA Offer
RSA Surges Most in Two Decades as Zurich Weighs Takeover Bid
Top Finance news: TOP FIN <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Aaron Kirchfeld in London.
To contact the reporter on this story:
Sarah Jones in London at +44-20-3525-2419 or
sjones35@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net;
Mark Bentley at +49-699-204-1262 or
mbentley3@bloomberg.net
Dan Kraut
2015-08-05 23:00:01.3 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Sarah Jones
(Bloomberg) -- With Zurich Insurance Group AG on the verge
of pursuing its biggest acquisition in more than a decade,
Europe is poised to add to the consolidation that is sweeping
the industry globally.
RSA Insurance Group Plc shares surged almost 20 percent on
July 28 after Zurich said it was considering an offer for the
London-based provider of property and auto coverage. Zurich is
said to be raising financing ahead of a potential offer for $8.7
billion RSA, people familiar with the talks said last week.
Insurance companies worldwide have been targeted in about
$64 billion of acquisitions so far in 2015, more than double the
amount in the same period a year ago. While the U.S. and Bermuda
accounted for the lion’s share, cash-rich European firms face
the same pressures that are driving consolidation elsewhere,
raising the specter that others such as Allianz SE and Axa SA
may follow Zurich and seek bigger transactions.
“‘There is definitely scope for a similar-size deal or
even larger in Europe,’’ said Sam Evans, global insurance deal
advisory lead at KPMG in London, whose clients include both
Zurich and RSA. ‘‘The general expectation is there is a lot more
activity to come.’’
Squeezed Margins
Insurers are merging as their margins get squeezed amid
increased competition from alternative players entering the
industry, and as investment income dwindles from record low
interest rates.
Combining can help the firms cut costs, while shoring up
their positions in markets they see as important. The largest
purchase announced this year was Ace Ltd.’s agreement to buy
Chubb Corp. in the U.S. for more than $28 billion.
There has been some dealmaking within Europe. Aviva Plc
bought smaller rival Friends Life Group Ltd. for $8.3 billion
and the Lloyd’s of London market has also seen a flurry of
activity led by XL Group Plc’s takeover of Catlin Group Ltd.
Otherwise, transactions have been mostly limited to asset
disposals and smaller purchases.
Stricter European-wide regulation on the industry in 2016,
known as Solvency II, has largely quashed M&A activity in the
region amid uncertainty about how much capital insurers will be
forced to have on their balance sheets.
Once insurers get regulatory approval on their capital
models, appetite for doing deals is expected to return, say
analysts including JPMorgan Chase & Co.’s Ashik Musaddi and Mark
Cathcart at Jefferies Group.
‘‘We have argued over the past year for sector
consolidation with the conglomerates leading the way,” said
Cathcart in a telephone interview. “It only takes one to break
ranks and then everyone else will breaks ranks. I love that
Zurich might get RSA, it makes sense. M&A on the continent will
happen.”
Deal Catalyst
While Allianz and AXA, two of Europe’s biggest insurers,
have previously said they’re not interested in making large
transactions, they could be tempted if the market reacts
positively to a Zurich-RSA deal, Cathcart said.
RBC Capital’s Kamran Hossain said he sees more chance of
deals happening in the Lloyd’s sector including potentially
Novae Group Plc and Hiscox Ltd., while JPMorgan’s Musaddi said
he expects to see more activity by medium-sized players
including Belgium’s Ageas and NN Group NV of the Netherlands.
“Zurich throwing their hat into the ring would have caused
consternation at the management board level of most big
insurers,” Trevor Moss, an analyst at Berenberg, said in an
interview. “It’s a catalyst for the European insurers to at
least think about it.”
For Related News and Information:
Zurich Said to Prepare Financing for Possible RSA Offer
RSA Surges Most in Two Decades as Zurich Weighs Takeover Bid
Top Finance news: TOP FIN <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Aaron Kirchfeld in London.
To contact the reporter on this story:
Sarah Jones in London at +44-20-3525-2419 or
sjones35@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net;
Mark Bentley at +49-699-204-1262 or
mbentley3@bloomberg.net
Dan Kraut