Thursday, December 14, 2017

M&A revival?

International acquisitions by Asian insurers have been on a downward trend this year, but the second half of 2017 seems to have brought a significant increase in activity within the region.

It was reported this week that Nippon Life is in talks to buy MassMutual Life’s Japan unit for up to ¥200 billion (US$1.77 billion), while Yunfeng Financial Group, backed by Alibaba billionaire Jack Ma, agreed to pay US$1.7 billion for the Hong Kong unit of MassMutual Life in August. And in September, AIA struck a deal to buy Commonwealth Bank of Australia’s life insurance business in Australia and New Zealand for US$3 billion.

This is a turnaround from the first half of the year, when Clyde & Co reported that completed insurance deals in the Asia-Pacific region fell by close to 40% compared to the same period in 2016.

Indeed, if the deal Nippon/MassMutual deal goes through it will be the first consolidation in the Japanese life insurance market since 2015, when Nippon Life acquired Mitsui Life Insurance.

There are also some significant potential deals in the pipeline, including Siam Commercial Bank’s sale of its insurance unit. The Thai bank failed to secure a deal, rumoured to be worth up to US$3 billion, to Hong Kong’s FWD in July. Had the deal been secured it would have been the biggest insurance M&A in South-East Asia, and it may yet return. AIA, Manulife and Prudential were all reported to be interested in the business before FWD emerged as the prime bidder.

The first-half slowdown in M&A was not just an Asian phenomenon. Clyde & Co reported that global insurance M&A hit a two-year low, with activity now down 24% from its most recent high in the first half of 2015, when there were 225 deals compared to 170 in 2017. In addition to Asia, this was also a reflection of weaker M&A activity in Europe.

“Uncertainty is the enemy of deal-making,” said Andrew Holderness, global head of the corporate insurance group at Clyde & Co. “M&A has risen in the Americas now that the uncertainty that plagued the market in the run-up to the US presidential election has eased somewhat. However, in Europe, uncertainty persists with Brexit acting as a significant brake on M&A activity.”

However, Holderness is confident that the underlying motivation for continued consolidation is still strong. “Growth remains a shareholder imperative in an increasingly difficult trading environment, and insurers are investigating every avenue — both organic and inorganic — in an attempt to deliver this, wherever they are in the world.”

A significant cause of the slowdown has been the Chinese government’s dim view of aggressive overseas acquisitions, particularly in the insurance industry, and a tightening of monetary controls. But even this trend may be reversed after the Communist Party’s 19th National Congress, which opens on October 18.

HNA, a Chinese conglomerate that reportedly explored an acquisition of Allianz earlier this year, is adamant that it will continue to make acquisitions despite being one of the targets of intense government scrutiny for its US$34 billion overseas buying spree.

“We will keep investing in related businesses even [though] we see some policy issues,” said Tan Xiangdong, HNA vice-chairman, at a panel discussion at the Forbes Global CEO conference in late September.

After the National Congress closes, other Chinese groups and insurers may once again return to the fray, sparking a strong revival of M&A activity as pent-up deal-making is unleashed.

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