Insurance M&A Update 2017 & 2018 Outlook - BKD · Anthem, Inc. ANTM $247.85 154.37 ... Cigna...
Transcript of Insurance M&A Update 2017 & 2018 Outlook - BKD · Anthem, Inc. ANTM $247.85 154.37 ... Cigna...
800.644.1704 | bkdcorporatefinance.com
INSURANCE MERGERS & ACQUISITIONS PERSPECTIVES
2017 & 2018 OUTLOOK
bkdcorporatefinance.com
75, 15.3% 80, 13.5%
415, 84.7%514, 86.5%
490
594
0
200
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600
2016 2017
Tran
sact
ion
Co
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Insurance Transactions by Subsector
2016 vs. 2017
Underwriters Brokers
COMMENTARY & OUTLOOK
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The insurance industry remained an active mergers and acquisitions (M&A) market in the second half (2H) of 2017, with a 38.2 percent year-over-year increase from the same period in 2016, with 333 total transactions for 2H 2017 and an aggregate deal value of $8.9 billion, bringing the full year of 2017 to 594 transactions and $12.8 billion in aggregate deal value.
Passed at the end of 2017, the Tax Cuts and Jobs Act will likely provide clarity for insurance industry M&A in 2018. While there were a number of components in the tax reform bill that could provide mixed results for the industry, the lowering of the corporate tax rate could make U.S. insurance sector assets more attractive to the market.
Rising interest rates in 2018 are likely to drive higher levels of growth and profitability for underwriters. After raising the benchmark rate from 1.25 percent to 1.5 percent in late 2017, Federal Reserve officials have projected three interest rate hikes in 2018. The median estimate has the federal funds rate at 2.1 percent by year-end 2018, with the 2019 median forecast at 2.7 percent.
Wholesale regulatory relief is unlikely for the insurance industry, as the Dodd-Frank Act regulatory framework appears likely to stay in place. However, the tone of U.S. regulators appears to have materially changed with a more collaborative approach and a better working relationship with regulated firms.
Global growth prospects appear strong going into 1H of 2018. However, the reappearance of volatility in the financial markets, tighter monetary conditions and geopolitical tensions could provide economic stumbling blocks. However, an ongoing focus on cutting costs, achieving scale, diversification and technology are expected to support continued strong insurance industry M&A activity in 1H 2018.
CONTENTS
Industry Segment Trends
Insurance Underwriters
Life & Health
Property & Casualty
Insurance Brokers
BKDCF Experience
BKD Services
About BKD Corporate Finance
ABOUT BKDCF
Founded in 1994, BKD Corporate Finance helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.
INSURANCE CONTACTS
Source: S&P Global Market Intelligence
Jason Corson
Director
417.865.8701
Tony Giordano
President & Managing Director
303.837.3562
Wyatt Jenkins
Vice President
417.865.8701
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6.00x
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Public Comparables
EV/EBITDA
L&H Insurance UWsP&C Insurance UWsS&P 500
TRENDS FOR INSURANCE UNDERWRITERS
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Public Comparables*
Source: S&P Global Market Intelligence & Capital IQ
Number of Deals by Purchase Price
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Less than $25MM 33 25 27 33 27 28 29 18 11 22 10
$25MM - $50MM 12 4 6 6 6 4 7 8 6 5 1
$50MM - $100MM 5 7 1 2 8 3 4 4 5 3 2
$100MM - $1B 16 14 6 23 13 11 8 16 8 13 9
More than $1B 6 3 3 3 3 1 1 2 5 2 5
Undisclosed 17 17 26 26 34 27 18 8 26 30 42
TOTAL 89 70 69 93 91 74 67 56 61 75 69
*Large cap public comparables include publicly traded companies with over $10 billion in market capitalization; mid cap publiccomparables include publicly traded companies with $2 billion to $10 billion in market capitalization; small cap public comparables include publicly traded companies with less than $2 billion in market capitalization
0.88x
0.84x
1.09x
0.95x
1.13x
1.35x
Small Cap
Mid Cap
Large Cap
EV/Revenue
NTM LTM
8.69x
9.19x
10.58x
8.81x
9.28x
10.23x
EV/EBITDA
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TRENDS FOR INSURANCE UNDERWRITERS
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Select Transactions
Public Comparables by Market Capitalization
Source: S&P Global Market Intelligence & Capital IQ
LIFE & HEALTH INSURANCE UNDERWRITERS
48
31 3041 42
4941
2638 36 38
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Number of Deals
12/3/17: CVS Health Corp. Acquires Aetna Inc.• In a blockbuster deal worth $69 billion, CVS Health Corp. announced its
acquisition of Aetna Inc. With the transaction, the national drugstore operator seeks to tackle soaring healthcare spending through lower-cost medical services in its pharmacies.
10/27/17: Aquarian Holdings, LLC Acquires Investors Heritage Capital Corporation• New York-based Aquarian Holdings announced its intent to purchase Frankfort,
Kentucky-based Investors Heritage Capital Corporation (IHCC) for $60.5 million. The transaction will give IHCC access to capital to support its continued growth.
Deal Value/Book Value: 435%Deal Value/Revenue: 1.13xDeal Value/EBITDA: 17.56x
Deal Value/Book Value: 84%Deal Value/Revenue: 0.95xDeal Value/Earnings: 41.34x
in millions of dollars
Company Ticker
Recent
Price
(1/31/18)
52-Week Price
Range
TTM
Revenue
TTM
EBITDA
Enterprise
Value
EBITDA
Margin
EV to
Sales
EV to
EBITDA
UnitedHealth Group Incorporated UNH $236.78 156.49 - 250.79 201,159 17,454 251,356 8.7% 1.25 14.40
Anthem, Inc. ANTM $247.85 154.37 - 267.95 90,039 5,876 80,415 6.5% 0.89 13.69
Prudential Financial, Inc. PRU $118.82 97.88 - 127.14 53,957 8,238 69,988 15.3% 1.30 8.50
Aetna Inc. AET $186.82 118.04 - 194.4 60,535 5,685 66,393 9.4% 1.10 11.68
Cigna Corporation CI $208.35 141.93 - 227.13 41,616 4,935 53,113 11.9% 1.28 10.76
Aflac Incorporated AFL $88.20 66.50 - 91.73 21,667 4,072 39,965 18.8% 1.84 9.81
Humana Inc. HUM $281.83 189.01 - 293.35 53,767 3,959 34,573 7.4% 0.64 8.73
Lincoln National Corporation LNC $82.80 61.45 - 86.68 14,257 2,335 22,051 16.4% 1.55 9.44
Principal Financial Group, Inc. PFG $67.60 56.12 - 75.59 14,093 2,607 20,457 18.5% 1.45 7.85
Centene Corporation CNC $107.24 63.12 - 112.42 45,810 1,770 19,032 3.9% 0.42 10.75
Average Top 10 59,690 5,693 65,734 11.7% 1.17 10.56
Average Large Cap (Over $10B) 55,290 5,327 61,095 11.9% 1.18 10.40
Average Mid Cap ($2B - $10B) 9,663 831 7,373 14.4% 1.42 9.52
Average Small Cap (Under $2B) 750 78 1,019 15.0% 2.35 16.58
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TRENDS FOR INSURANCE UNDERWRITERS
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Public Comparables by Market Capitalization
*There were five transactions in 2017 with undisclosed target statesSource: S&P Global Market Intelligence & Capital IQ
PROPERTY & CASUALTY INSURANCE UNDERWRITERS
2017* Number of Deals by State Number of Deals by Year
Year # of Deals
2007 58
2008 50
2009 49
2010 65
2011 64
2012 42
2013 41
2014 43
2015 37
2016 48
2017 42
12
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152
in millions of dollars
Company Ticker
Recent
Price
(1/31/18)
52-Week Price
Range
TTM
Revenue
TTM
EBITDA
Enterprise
Value
EBITDA
Margin
EV to
Sales
EV to
EBITDA
Chubb Limited CB $156.15 127.15 - 157.50 32,243 4,492 86,374 13.9% 2.68 19.23
The Travelers Companies, Inc. TRV $149.92 113.76 - 150.42 28,902 3,912 46,915 13.5% 1.62 11.99
The Allstate Corporation ALL $98.77 75.00 - 105.36 38,524 5,023 42,846 13.0% 1.11 8.53
The Progressive Corporation PGR $54.10 36.74 - 58.25 26,816 2,526 35,280 9.4% 1.32 13.97
CNA Financial Corporation CNA $54.16 40.76 - 55.62 9,542 1,559 17,261 16.3% 1.81 11.07
Markel Corporation MKL $1,147.69 909.00 - 1157.3 6,062 327 16,490 5.4% 2.72 50.47
Arch Capital Group Ltd. ACGL $90.94 86.58 - 102.6 5,195 849 16,470 16.3% 3.17 19.40
Cincinnati Financial Corporation CINF $76.90 68.24 - 81.98 5,732 836 12,786 14.6% 2.23 15.29
XL Group Ltd XL $36.84 33.77 - 47.27 11,328 -186 11,200 -1.6% 0.99 (60.22)
Average Top 10 18,260 2,149 31,736 11.2% 1.96 9.97
Average Large Cap (Over $10B) 18,260 2,149 31,736 11.2% 1.96 9.97
Average Mid Cap ($2B - $10B) 3,731 214 4,426 6.9% 1.62 35.15
Average Small Cap (Under $2B) 719 56 793 8.0% 1.10 18.39
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TRENDS FOR INSURANCE BROKERS
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*Other consists of title, financial guaranty and mortgage guaranty transactionsSource: S&P Global Market Intelligence
050
100150200250300350400450500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Property & Casualty 159 185 116 155 173 171 131 172 256 179 187
Life & Health 54 78 44 50 66 74 34 61 66 63 114
Multiline 35 18 20 26 51 90 60 92 137 177 199
Other* 13 10 5 3 7 5 3 8 7 10 14
Number of Deals
261Total 291 185 234 297 340 228 333 466 429 514
Top 10 Buyers in 2017
Buyer Buyer Type
Private
Equity-
Backed
Private Equity Investors# of
Transactions
% of Total
Transactions
Acrisure, LLC Insurance Broker
ABRY Partners, Ares Capital, HarbourVest Partners, MidCap Financial Services & Veronis Suhler Stevenson
67 13.0%
Hub International Limited Insurance Broker - - 42 8.2%
Arthur J. Gallagher & Co. Insurance Broker - - 25 4.9%
AssuredPartners, Inc. Insurance Broker Apax Partners & Canada Pension Plan Investment Board
23 4.5%
NFP Corp. Insurance Broker HPS Investment Partners, Stone Point Capital & Madison Dearborn Partners
20 3.9%
National Senior Insurance, Inc. Insurance Broker - - 18 3.5%
Alera Group, Inc. Insurance Broker - - 15 2.9%
Hilb Group, LLC Insurance Broker ABRY Partners 13 2.5%
RSC Insurance Brokerage, Inc. Insurance Broker HarbourVest Partners & Kelso Private Equity
8 1.6%
Brown & Brown, Inc. Insurance Broker - - 6 1.2%
TOTAL 237 46.1%
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TRENDS FOR INSURANCE BROKERS
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Source: Capital IQ
Public Comparables
in millions of dollars
Company Ticker
Recent
Price
(1/31/18)
52-Week Price
Range
TTM
Revenue
TTM
EBITDA
Enterprise
Value
EBITDA
Margin
EV to
Sales
EV to
EBITDA
Marsh & McLennan Comp. MMC $83.52 67.32 - 86.54 14,024 3,331 47,120 23.8% 3.36 14.15
Aon plc AON $142.17 109.82 - 152.78 9,998 2,287 39,294 22.9% 3.93 17.18
Willis Towers Watson Public Ltd. WLTW $160.47 120.87 - 165.00 8,116 1,886 25,020 23.2% 3.08 13.27
Arthur J. Gallagher & Co. AJG $68.32 53.19 - 70.55 6,100 906 14,880 14.8% 2.44 16.43
Brown & Brown Inc. BRO $52.48 41.10 - 53.77 1,857 580 7,626 31.2% 4.11 13.15
AUB Group Limited AUB $10.17 7.89 - 10.95 208 55 728 26.2% 3.50 13.36
Average 6,717 1,507 22,445 23.7% 3.40 14.59
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Public Comparables Trailing
& Forward EV/EBITDA
LTM Trailing EV/EBITDA NTM Forward EV/EBITDA
Median 1-Year Trailing
EV/EBITDA of 14.79x
Median 1-Year Forward
EV/EBITDA of 12.95x
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Bryan Adams | Managing Partner
Integrity Marketing Group | Highland Village, Texas
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.”
SERVICE OFFERING HIGHLIGHT
Debt & Equity Financing
Your company may need permanent or long-term capital to finance an acquisition or management buyout. Perhaps you have outgrown your current lending relationship and need to pursue a larger credit facility with a regional or national bank. BKD Corporate Finance can offer alternatives.
Through our structured marketing strategy, we can help you find cost-effective financing alternatives for:
• Venture capital• Senior & subordinated debt• Asset-based financing• Recapitalizations• Equity
We understand the importance of evaluating and selecting financing strategies that achieve low cost of capital while mitigating potential risks to you and your company. We work with you through each phase of the process, helping you develop a financing strategy and identify financing sources that align with your objectives. Our team has an extensive network of senior lenders, mezzanine investors and private equity funds that can help unite you with the right partner.
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BKD SERVICES
Abundant services.
Sheer precision.
BKD, LLP offers a full range of services and industry-focused expertise to provide you with insightful solutions and help you stay a cut above the competition.
FINANCIAL
ASSURANCE• Audit, review & compilations• Benchmarking• Internal audit• Internal control studies• SEC filings• SOX 404 compliance
CONSULTING• Accounting outsourcing• Bankruptcy consulting• Budgeting & financial planning• Cost accounting• Employee benefit plan
structuring & administering• ESOP feasibility analysis• Forecasts & projections
FEDERAL & STATE TAX
PLANNING & COMPLIANCE• Compensation planning• Corporate tax planning• Inventory tax planning• R&D tax credit enhancements• Real estate cost segregation
studies• Restructuring planning• State & local tax planning
FORENSICS & VALUATION
CONSULTING• Bankruptcy services• Business valuations• Fraud prevention• Litigation support
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STRATEGIES• DISC• Expatriate assignment services• Foreign tax credit planning• Global structuring support• Indirect global taxes• Transfer pricing
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TRANSACTION SERVICES• Federal, state & local tax
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GROWTH & ADVISORY
INVESTMENT BANKING• Mergers & acquisitions• Company sales & divestitures• Debt & equity recapitalizations• Management buyouts• Affiliations• Succession planning• Strategic options analysis
ECONOMIC DEVELOPMENT• Expansion projects• Grants & public incentives
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APPLICATIONS SOFTWARE• Best-Abra• MAS 90, 200 & 500• Microsoft CRM• Microsoft Dynamics AX• Microsoft Dynamics GP
IT SERVICES• IT assessments & planning• IT control reviews• Project management assistance• Security solutions & penetration
testing
STRATEGIC TECHNOLOGY• E-business planning• IT assessments & planning• Systems selection & implementation
9
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Products
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Telecom
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ABOUT US
Construction &
Engineering
Financial
Services
Health
Care
Manufacturing
&
Distribution
Business
Services
Energy
INDUSTRY FOCUS
BKDCF, a wholly owned subsidiary of BKD, LLP, helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.
Founded in 1994, BKDCF is staffed with experienced 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.
The professionals of BKDCF have more than 100 years of combined experience
helping company owners plan for and execute their growth and exit strategies.
From managing the sale of a company to negotiating the acquisition of a
competitor or raising debt and equity capital to improve financial and operational
flexibility, BKDCF can help you to develop a specific course of action for achieving
your desired results.
ABOUT US
10
CONTACT US – INSURANCE TEAM
Jason Corson
Director
Springfield, MO
417.865.8701
Tony Giordano
President & Managing Director
Denver, CO
303.837.3562
Wyatt Jenkins
Vice President
Springfield, MO
417.865.8701