Infrastructure

09:58 AM
Connect Directly
Twitter
LinkedIn
Google+
RSS
E-Mail
50%
50%

Insurance Tech M&A Jumped 16% In 2013: Berkery Noyes

The growing focus on core systems modernization and industry consolidation will drive M&A activity through 2014.

Mid-market investment bank Berkery Noyes has released its 2013 mergers and acquisitions report for financial technology and information companies in capital markets, payments, banking, insurance and other financial services. There were 341 deals across all industries in 2013, a 10% growth from 2012.

The insurance sector saw a 16% increase in activity from 2012 to 2013. Private equity firms Hellman & Friedman and Kohlberg Kravis Roberts & Co. (KKR) completed the two largest insurance transactions. The former acquired Applied Systems for $1.8 billion; the latter bought Mitchell International for $1 billion.

[More on Hellman & Friedman’s deal: Hellman & Friedman Acquire Applied Systems. ]

The spike in M&A activity and significant participation by private equity firms can be partially explained by timing. “A lot of private equity firms got into the [insurance] space when the market went bust in 2008,” says Chad Hersh, managing director of insurance practice at Novarica. “A lot of them like to get out after five to seven years, and we’re seeing that now.”

Attempts to consolidate the industry may also have contributed to the increase, Hersh says. Historically, he explains, one or two vendors are created every time one undergoes a deal. The constant number of businesses proves frustrating for buyers who hope to see company numbers dwindle.

Core systems modernization is a major industry theme driving M&A trends. “I think now [the industry] has a decent number of core systems vendors with a big enough client base to be investable,” says Hersh. Insurance tech budgets are up this year and there are still a number of larger vendors that haven’t made the transition to fully modernized systems. Those with subpar software and large client bases will be vulnerable, he says.

M&A transactions will not slow down this year. “I think we’ll continue to see a couple of big deals this year and a growing number of small ones,” Hersh predicts. The industry should also start to see some organically grown companies trying to acquire smaller competitors.

The continuous increase in M&A activity will not lead to increased vendor shifts. “Historically, the market is so fragmented,” says Hersh. “One or two [companies] getting acquired won’t cause much realignment.”

Kelly Sheridan is an associate editor for Insurance & Technology. Prior to joining InformationWeek Financial Services, she was a staff writer for InformationWeek and InformationWeek Education. Kelly has also written for trade publication Promo Marketing and a number of ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
KBurger
50%
50%
KBurger,
User Rank: Author
1/27/2014 | 1:41:41 AM
re: Insurance Tech M&A Jumped 16% In 2013: Berkery Noyes
There has been a long-standing tension for insurers between the benefits of consolidating their IT eco-systems with a single or few vendor/s that can provide a range of solutions and services; or going the best-of-breed approach, with a portfolio of vendors & solutions. It's certainly easier and probably less-costly to manage fewer vendors, yet there are risks related to "putting all the eggs in one basket." But as Chad Hersh notes, the drive to modernize core systems will marginalize those vendors that can't deliver on that count, and that also may force some carriers to go "best of breed" at least for the short term.
Register for Insurance & Technology Newsletters
White Papers
Current Issue
Insurance & Technology Digital Issue Oct. 27, 2014
Innovation? Check. Core modernization? Check. Security? Check. Today's insurance IT challenges don't stump this year's Elite 8.
Slideshows
Video