Acquisition fever has hit the reinsurance market, with excess capital fuelling keen interest in takeover targets like Omega
When it comes to mergers and acquisitions in the (re)insurance industry, it seems three is the magic number.
Echoing the three-way battle to take over Transatlantic Re, embattled Lloyd’s (re)insurer Omega is now being pursued by three determined suitors: Canopius, Haverford and Barbican.
These days it seems no company can announce an offer for another firm without a string of rival bids following closely in its wake.
Market conditions have a lot to do with this trend. Despite the recent spate of catastrophe losses, companies are sitting on a lot of excess capital, and rates have not yet risen to the level where they can deploy it. Acquisitions, therefore, are the only option to grow, so when a company is known to be in play, it will attract a lot of interest.
In addition, stock market jitters and recent losses make it difficult to value companies. An offer can provide other would-be suitors with a handy benchmark. M&A competition is a good thing in some respects. Shareholders can get bigger rewards if the battling suitors try to outbid one another, for example. In addition, the knowledge that rival bids will emerge should make the initial bidder extra careful to make a good offer.
But it can also be a costly and time-consuming process. The greater the number of bids, the more management time required to sift through the proposals. Then there is the issue of break-up fees.
All this effort can be to little avail. Transatlantic now looks likely to go it alone, having terminated its agreement with Allied World and knocked back Validus and National Indemnity’s offers. After its travails, Transatlantic is now $48.3m lighter, having paid Allied World’s termination fee and expenses - one way of using up some excess capital perhaps, but not one that shareholders are likely to approve of.
Ben Dyson, assistant editor, Global Reinsurance