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Canada’s P&C players keen on M&A, but not enough companies for sale: KPMG | Canadian Insurance
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Canada’s P&C players keen on M&A, but not enough companies for sale: KPMG

2017 will see one to two notable acquisitions, no different than last 10 years

While the majority of players in the P&C insurance sector in Canada are hoping to make substantial mergers and acquisitions, there is a lack of companies that can be sold, according to a KPMG expert on M&A.
Georges Pigeon, Partner, Deal Advisory with KPMG Canada, told Canadian Insurance Top Broker that there’s been a continued interest to undertake acquisitions in the P&C landscape in Canada over the last 12 to 15 years. “Consistent pressure on interest yields have forced companies to make their underwriting operations as profitable as possible, as they can no longer solely rely on investment income for returns.

However, there’s multiple fold acquirers in Canada as opposed to potential targets for acquisitions. We see this mismatch, where most, if not all [industry players], are on the lookout for acquisitions but the problem is finding the companies that can be sold.”

While interest in M&A is high, 2017 will see one to two notable acquisitions, Pigeon said, as has been the case for the past 10 to 12 years.
“Historically M&A has been fairly constant to the point of, I would argue, predictability.”

Global perspective

This year, 84% of insurers (not only P&C) across the world plan one to three acquisitions, while 94% plan to make at least one divestiture. According to a global KPMG survey recently released, entitled The New Deal: Driving insurance transformation with strategy-aligned M&A, the United States is the top national destination for acquisitions, followed by China. On a regional basis, insurers are more focused on Asia-Pacific, with 47% of survey respondents seeing acquisition potential, followed by North America at 21%.

A desire to transform or enhance the business model was cited as top reasons for M&A activity by 33% of survey respondents.
While 92% ranked their capabilities to execute domestic transactions as high, 77% ranked their capabilities to execute cross-border acquisitions as moderate to low.

Rising interest in niche opportunities

While foreign-owned insurance companies in Canada are more focused on their Canadian operations and not necessarily looking to cross-border acquisition opportunities, as that would be governed by head office, Canadian-owned companies are interested in both domestic and cross-border acquisitions.

The New Deal report indicates a gap in strategically aligned M&A in overall insurance globally, with 37% of respondents indicating their priority is to be reactive to market opportunities and 50% who believe they are less aligned when it comes to evaluating potential risks associated with integrating/separating the target’s operating model.

However, Pigeon said Canadian-owned P&C insurance companies “have always demonstrated a very measured, strategic approach to cross-border acquisitions.”
There’s a rising interest in target companies who specialize in niche products within P&C, Pigeon added. “The Canadian marketplace is fragmented on the face of it, but there is some concentration within specific product lines.”

Broker consolidation to continue

Consolidation in the broker space has continued at a strong pace over the last eight to 10 years, Pigeon said, “with valuations continuing to be very strong”.

As is the global trend, apart from growth in market share or geographic footprint, Canadian buyers look at acquisition as a tool to help them transform their business, whether in the underwriting or distribution space. “It’s becoming more prevalent in the broker space, where some brokers are developing modern platforms and they’re looking at acquisitions to leverage these efficiencies, as well as provide a succession plan.”