Merging companies requires more thought and less haste, according to John Andre, group vice president of property casualty at rating agency AM Best.
Speaking about the recent M&A activity in the market, Andre told Bermuda:Re+ILS that due diligence was a vitally important part of the merger process.
“It is imperative, significant due diligence is foremost for any deal to be successful. When there is legacy or potential legacy issues at stake, these need to be identified up front. Finding the right fit is extremely important. Finding the right product line, geographic presence that will complement a company's existing book of business is the focus for many,” he said.
Andre added that the right fit was a top requirement when deciding on an acquisition or merger.
“Companies understand that finding the right partner that will allow that company to reach a larger audience or diversify their current books of business with expertise they did not possess prior to that ‘marriage’ is what could make a company more successful than some of its competitors,” he said.
“On the other end the possibility of combining with a company that is not a good fit or only increases one's exposure or risk may become costly in the case of an event.”
Brian Schneider, senior director of Fitch Ratings, agreed that many re/insurance companies were consolidating in order to get the most out of economies of size and scale, but that careful consideration was required for this.
According to Schneider the smoothest mergers occur when a company considers potential partners in the long term, looking at what might make a good fit as their business evolves over time.
He pointed to the XL-Catlin deal in early 2015 as a good example of how smooth the process can be. However, he cited the Partner Re/Axis potential merger as an example of a deal that has fallen through as a result of an external bid by Exor.
Click here to read the rest of the feature.
AM Best, Fitch, Mergers & Acquisitions, Bermuda, Europe