Insurance M&A Perspectives - BKD€¦ · bkdcorporatefinance.com INSURANCE M&A PERSPECTIVES 1H 2017...

INSURANCE M&A PERSPECTIVES – FIRST HALF 2017

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INSURANCE M&A PERSPECTIVES 1H 2017

U.S. INSURANCE INDUSTRY M&A – OVERVIEW & OUTLOOK

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The insurance industry remained an active mergers and acquisitions (M&A) market in the first half (1H) of 2017, with 261 total transactions, an aggregate deal value of $5.4 billion and a 4.8 percent year-over-year (YOY) increase from the same period. Approximately 89 percent of the transactions involved insurance broker targets, while 11 percent were insurance underwriters, consisting of 46 percent life and health underwriters and 54 percent property and casualty underwriters. The insurance broker M&A market is dominated by strategic buyers, with nine out of 10 of the top 10 buyers in the 18-month period from 2016 to 1H 2017 consisting of large insurance brokers. Five out of those nine brokers are private equity-backed, showing there’s a strong private equity interest in the industry. Out of the 661 insurance broker transactions in that 18 month period, 294 transactions had some private equity involvement, whether it was a private equity platform investment or a private equity-backed strategic buyer. The top 10 insurance brokerage buyers are detailed on page six of this update. While the insurance broker space consists of a fragmented buyer market, the insurance underwriter buyer market is dominated by large insurance underwriters.

Cross-border transaction activity is expected to remain strong in the near term, as insurers seek to diversify market risk and earning profiles. Due to the size of the U.S insurance market—representing more than 25.5 percent of total world premiums in 2016—and the U.S. economy’s apparent strength, the U.S. insurance market continues to represent an attractive target for acquirers and investors looking for diversification opportunities. Healthy economic growth in Asia likely will continue to create openings for insurers to pursue strategic growth in the region, with overall premiums in the region projected to grow by 9.5 percent in 2017. The insurance industry in Europe faces significant and ongoing organic growth challenges, with political and economic uncertainty on many fronts. This uncertainty is likely to push European insurers to refocus on strategic priorities and look for growth opportunities through consolidation and cross-border acquisitions.

Specific to the U.S., corporate tax reform and a more lenient regulatory environment could drive significant increases in industry profitability and M&A transactions and valuations. However, corporate America is still waiting for clear guidance from Washington regarding the direction and magnitude of tax reform. Political missteps could jeopardize the most sweeping and advantageous tax code changes, but the industry is at least seeing favorable trajectories for economic indicators, regulation and interest rates.

Combined with ongoing consolidation trends in the industry driven by the need for economies of scale, diversification and technology, these macroeconomic trends are expected to drive vibrant M&A activity in the second half of 2017.

Source: S&P Global Market Intelligence

38

211

28

233

0 50 100 150 200 250

Underwriters

Brokers

YOY Insurance Transactions by Category

1H 2016 vs. 1H 2017

1H '17 1H '16

4.8% YOY Increase

261 Total Insurance

Transactions in 1H 2017


0.91x

0.83x

1.03x

0.94x

0.78x

1.12x

SmallCap

MidCap

LargeCap

EV/Revenue

TRENDS FOR INSURANCE UNDERWRITERS

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Insurance Underwriters Public Comparables*

Source: S&P Global Market Intelligence-Capital IQ


*Large-cap public comparables include publicly traded companies with more than $10 billion in market capitalization; mid-cap public comparables include publicly traded companies with $2 billion to $10 billion in market capitalization; and small-cap public comparables include publicly traded companies with less than $2 billion in market capitalization


Number of Insurance Underwriter Deals by Purchase Price

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H '16 1H '17

Less than $25M 38 28 30 36 30 33 33 22 16 21 11 4

$25MM-$50M 12 5 7 7 7 5 7 8 6 6 3 0

$50MM-$100M 7 8 4 3 11 4 5 4 5 3 0 1

$100MM-$1B 22 17 7 24 14 12 10 17 9 13 6 3

More than $1B 8 3 3 4 3 3 1 3 7 2 0 2

Undisclosed 17 19 27 32 41 33 26 13 32 39 18 18

TOTAL 104 80 78 106 106 90 82 67 75 84 38 28

6.00x

7.00x

8.00x

9.00x

10.00x

11.00x

12.00x

13.00x

Composite EV/EBITDA

L&H Insurance Underwriters

P&C Insurance Underwriters

S&P 500

8.57x

9.44x

10.04x

10.98x

7.41x

10.66x

EV/EBITDA




4

Life & Health Insurance Underwriters

May 24, 2017: CF Corporation Acquires Fidelity & Guaranty Life• Nevada-based CF Corporation has acquired Des Moines, Iowa-based Fidelity &

Guaranty Life for $1.8 billion. Fidelity & Guaranty Life offers fixed annuity and life insurance products distributed by independent agents through an established independent marketing organization.

Source: S&P Global Market Intelligence, S&P Global Market Intelligence - Capital IQ

Deal Value/Book Value: 96%

Deal Value/Revenue: 1.42x

Select Transactions

Public Comparables by Market Capitalization

In millions of dollars

Company TickerRecent Price (6/30/17)

52-Week Price Range

TTM Revenue

TTM EBITDA

Enterprise Value

EBITDA Margin

EV to Sales

EV to EBITDA

UnitedHealth Group Incorporated UNH 160.04 107.51-164.00 180,904 13,793 174,596 7.6% 0.97 12.66

Prudential Financial, Inc. PRU 104.06 57.19-08.29 63,099 9,753 54,815 15.5% 0.87 5.62

Aetna Inc. AET 124.01 92.42-136.50 62,476 5,972 45,172 9.6% 0.72 7.56

Anthem, Inc. ANTM 143.77 114.85-148.26 83,354 5,551 52,298 6.7% 0.63 9.42

Cigna Corporation CI 133.39 115.03-148.99 39,252 3,637 36,149 9.3% 0.92 9.94

Humana Inc. HUM 204.03 150.00-217.80 54,862 2,778 27,927 5.1% 0.51 10.05

Aflac Inc. AFL 69.60 54.57-74.50 22,201 4,609 29,952 20.8% 1.35 6.50

Principal Financial Group, Inc. PFG 57.86 33.09-61.34 11,687 1,691 18,609 14.5% 1.59 11.01

Lincoln National Corporation LNC 66.27 30.39-69.49 13,174 1,814 18,373 13.8% 1.39 10.13

Unum Group UNM 43.93 23.99-45.01 10,972 1,560 13,135 14.2% 1.20 8.42

Average Top 10 54,198 5,116 47,103 11.7% 1.01 9.13

Average Large Cap (More than $10B)

54,198 5,116 47,103 11.7% 1.01 9.13

Average Mid Cap; ($2B-$10B) 10,778 783 6,499 13.5% 1.33 8.40

Average Small Cap (Less than$2B)

1,664 100 1,264 14.6% 1.22 12.69

48

31 29

41 42

48

41

25

38 36

1613

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H '16 1H '17

Number of Deals




5

February 1, 2017: Markel Corporation Acquires SureTec Financial Corporation• Glen Allen, Virginia-based Markel Corporation has acquired Texas-based SureTec Financial Corporation for $250

million. The acquired insurance agency is a subsidiary of SureTec, one of the largest privately owned surety companies in the United States. As a result of this transaction, SureTec Financial Corporation will become part of Markel’s Specialty division and U.S. insurance segment.

Source: S&P Global Market Intelligence, S&P Global Market Intelligence - Capital IQ

Property & Casualty Insurance Underwriters

Select Transactions

Public Comparables by Market Capitalization



52-Week Price Range

TTM Revenue

TTM EBITDA

Enterprise Value

EBITDA Margin

EV to Sales

EV to EBITDA

Chubb Limited CB 132.12 106.82-133.89 28,015 4,725 76,587 16.9% 2.73 16.21

The Travelers Companies, Inc. TRV 122.42 101.23-123.09 27,095 5,150 40,942 19.0% 1.51 7.95

Progressive Corp. PGR 74.12 56.03-74.77 35,947 2,911 33,761 8.1% 0.94 11.60

The Allstate Corporation ALL 35.50 29.32-35.95 22,690 1,768 24,083 7.8% 1.06 13.62

Markel Corp. MKL 904.50 805.03-989.18 5,604 1,089 13,166 19.4% 2.35 12.09

Cincinnati Financial Corp. CINF 75.75 53.64-79.60 5,400 999 12,627 18.5% 2.34 12.64

CNA Financial Corporation CNA 41.50 27.99-42.27 9,245 895 13,644 9.7% 1.48 15.25

Arch Capital Group Ltd. ACGL 86.29 59.83-88.41 4,377 897 13,479 20.5% 3.08 15.02

XL Group plc XL 37.26 30.33-38.70 10,225 858 11,260 8.4% 1.10 13.12

W.R. Berkley Corporation WRB 66.51 47.54-66.91 7,494 1,038 9,725 13.8% 1.30 9.37

Average Top 10 15,609 2,033 24,927 14.2% 1.79 12.69

Average Large Cap (More than$10B)

16,511 2,144 26,616 14.3% 1.84 13.06

Average Mid Cap ($2B-$10B) 3,447 459 4,726 14.7% 1.78 12.00

Average Small Cap (Less than $2B)

625 87 773 16.6% 1.23 8.42

5649 49

65 64

42 41 4237

48

2215

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H '16 1H '17

Number of Deals



TRENDS FOR INSURANCE BROKERS

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*Other consists of Title, Financial Guaranty and Mortgage Guaranty transactions.

Top 10 Insurance Broker Buyers in Combined 2016 & 1H 2017


050

100150200250300350400450500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H '16 1H '17

Property & Casualty 155 185 114 154 170 170 130 172 254 179 95 89

Life & Health 54 78 43 50 65 74 34 61 66 63 20 52

Multi-line 35 16 20 26 51 89 60 92 137 177 92 87

Other* 13 10 5 3 7 5 3 8 7 9 4 5

Number of Deals

257Total 289 182 233 293 338 227 333 464 428 233211

Buyer Buyer Type

Private

Equity-

Backed

Private Equity Investors# of

Transactions

% of Total

Transactions

Acrisure, LLC Insurance Broker

ABRY Partners, Ares Capital, HarbourVest Partners, MidCapFinancial Services and VeronisSuhler Stevenson

65 9.8%

Hub International Limited Insurance Broker - - 43 6.5%

Arthur J. Gallagher & Co. Insurance Broker - - 39 5.9%

AssuredPartners, Inc. Insurance Broker Apax Partners and Canada Pension Plan Investment Board

33 5.0%

Alera Group, Inc. Insurance Broker - - 25 3.8%

Confie Seguros Holding Co. Insurance Broker - - 22 3.3%

Hilb Group, LLC Insurance Broker ABRY Partners 21 3.2%

Ontario Teachers' Pension Plan Board

Asset Manager - - 20 3.0%

NFP Corp. Insurance Broker

HPS Investment Partners, Stone Point Capital and Madison Dearborn Partners

18 2.7%

RSC Insurance Brokerage, Inc. Insurance Broker HarbourVest Partners and Kelso Private Equity

15 2.3%

TOTAL 301 45.5%



TRENDS FOR INSURANCE BROKERS

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Source: S&P Global Market Intelligence-Capital IQ

9.00x

10.00x

11.00x

12.00x

13.00x

14.00x

15.00x

Public Comparables Trailing & Forward EV/EBITDA

LTM EV/EBITDA NTM EV/EBITDA

Median LTM

EV/EBITDA of

13.79x

Median NTM

EV/EBITDA of

11.9x

Public Comparables



52-Week Price Range

TTM Revenue

TTM EBITDA

Enterprise Value

EBITDA Margin

EV to Sales

EV to EBITDA

Marsh & McLennan Companies MMC 77.96 62.33-80.47 13,378 3,187 45,224 23.8% 3.38 14.19

Aon plc AON 132.95 105.35-137.28 11,710 2,469 40,661 21.1% 3.47 16.47

Willis Towers Watson Public Ltd. WLTW 145.46 112.76-150.47 7,862 1,525 23,038 19.4% 2.93 15.11

Arthur J. Gallagher & Co. AJG 57.25 47.15-59.11 5,650 881 12,722 15.6% 2.25 14.44

Brown & Brown, Inc. BRO 43.07 35.81-45.77 1,785 572 6,534 32.0% 3.66 11.43

AUB Group Limited AUB 9.97 7.15-10.70 192 52 707 26.9% 3.69 13.73

Average 6,763 1,448 21,481 23.1% 3.23 14.23



BKD CORPORATE FINANCE INSURANCE EXPERIENCE

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“The BKDCF team was instrumental in helping us prepare for and

execute this transformational and rewarding transaction. Finding the

right investor that checked all of the boxes for our rapidly growing

company seemed a very daunting task but the trusting relationship

that we built with BKDCF while exploring our strategic options ensured

that we were working with the right team that always had our best

interests in mind. BKDCF had an excellent understanding of our

business model … I would strongly recommend the BKDCF team for

any business owner exploring their liquidity or growth capital options.”

Bryan Adams // Managing Partner

Integrity Marketing Group // Highland Village, Texas

SERVICE OFFERING HIGHLIGHT: STRATEGIC PLANNING SERVICES

Whether you want to grow your business or pursue liquidity options, BKD Corporate Finance, LLC (BKDCF) can help you develop a plan to enhance your company’s value. Our professionals have a depth of technical expertise and experience in growth and exit strategies and can help you make the right decision. Our three-phase Strategic Options Analysis can help you assess the financial and strategic opportunities unique to your company.

• Phase I – Company-Specific Valuation Dynamics – Evaluation of your company’s historical and projected financialperformance, with potential “recast” adjustments in mind, since many privately held companies havediscretionary and nonrecurring costs that result in reduced cash flow

• Phase II – Market Dynamics – Research of relevant M&A activity and public company valuations to identifyindustry-specific value drivers and valuation approaches

• Phase III – Strategic Options – With the information discovered and researched in Phases I and II, BKDCF willestimate a market value range for your company and assess the pros and cons of your company’s liquidity andsuccession options

Tony GiordanoPresident & Managing DirectorDenver, [email protected]

Jason CorsonDirectorSpringfield, Missouri

[email protected]

Wyatt JenkinsVice PresidentSpringfield, [email protected]

CONTACT US – INSURANCE TEAM

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BKD CORPORATE FINANCE – FULL-SERVICE, MIDDLE-MARKET INVESTMENT BANK

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BKDCF, a wholly owned subsidiary of BKD, LLP, helps companies and stockholders go beyond their numbers by creating value through corporate finance solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

Founded in 1994, BKDCF is staffed with experienced corporate finance specialists, investment bankers and financial analysts. In addition, the firm draws on the resources of BKD with its network of accountants, auditors, tax professionals, business consultants and industry-specific consultants.

BKDCF is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation.

ABOUT BKD CORPORATE FINANCE

The professionals of BKD Corporate Finance, LLC have

more than 100 years of combined experience helping

company owners plan for and execute their growth and

exit strategies. From managing a company sale to

negotiating the acquisition of a competitor or raising debt

and equity capital to improve financial and operational

flexibility, BKD Corporate Finance can help you experience

the insight to develop a plan for achieving your desired

results.

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Insurance M&A Perspectives - BKD€¦ · bkdcorporatefinance.com INSURANCE M&A PERSPECTIVES 1H 2017...

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