The spate of high-profile deals this year has dominated talk on the Q1 conference calls but the high price tags are making CEOs jittery.
The trend was kicked off with AIG’s takeover of Ed Noonan’s Validus in January, with Axa’s $15.3bn bid for XL following hot on the heels in early March.
Both of the acquired Bermudians achieved impressive valuations for their respective companies, especially for price to tangible book ratio – the price of a security compared to its book value.
So it’s no surprise that against this backdrop M&A has emerged as a hot topic on many Q1 earnings calls in the past week.
But many chief execs have dismissed industry speculation that they could be interested in pursuing M&A activity, citing the high costs associated as a major deterrent.
Chubb’s Evan Greenberg lead the charge, downplaying speculation the global carrier was on the M&A trail in what he deemed an “overpriced” market.
“We’re not going to over-intellectualise and try to rationalise to ourselves around here why it makes sense to pay for an acquisition that’s overpriced – it just isn’t going to happen,” the CEO and chairman said.
Greenberg said that Chubb was “happy at rest” in what he called a “pricey” time for those purchasing P&C businesses.
“We are patient long-term builders and investors,” Greenberg told analysts.
“Money does not burn a hole in our pocket.”
Over at Everest Re, Dominic Addesso, CEO of the (re)insurer, said it would always explore opportunities in the marketplace, however he said that the current propositions are simply too expensive.
“There is nothing that we can speak of today,” Addesso said on an earnings call with analysts last week.
“And that’s because of the price of many of these properties,” he added.
Addesso also pointed to the additional expenses associated with integrating businesses following an acquisition, with the CEO highlighting a preference at Everest Re to “tilt towards an organic build”.
However, the chief exec said that while this is the preferred approach when it comes to building out the firm, Everest Re hasn’t ruled out M&A if the right company was to come up for sale.
“If something were to come along that would fit strategically for us in an area that we’ve not yet fully developed … we’d take it,” Addesso said.
This sentiment was echoed at The Hartford.
The group chairman and CEO Christopher Swift said that the carrier would consider “financially accretive acquisitions” that accelerate its growth in the commercial lines space, but that the current market offering carried too high a price tag.
“Acquisitions are often expensive, especially in today’s markets, and they have execution risks that need to be clearly understood,” Swift said.
Axa paid nearly 2x tangible and fully diluted price to book for XL.
This was an unusually high bid premium relative to other transactions that have taken place in the sector in recent years.
The takeover of Validus came in at a multiple to tangible book value of 1.78x, while the acquisition of Novae by Axis in July 2017 came in at a multiple of around 1.47x.
However, these deals pale in comparison to the tangible book multiples that have been paid by Japanese (re)insurers looking to diversify through acquisitions in recent years.
In June 2015, Tokio Marine paid a huge 2.55x tangible book value for HCC.
MS&AD’s takeover of Amlin the same year came in at a multiple to tangible book of 2.43x.