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M&A, the fastest road to riches?

Most CEOs growth satnav points them down the M&A road. Whether or not it’s the fastest road to riches is questionable. What isn’t in doubt is that it is the busiest.

You can’t swing a cat in Lime Street without hitting a CEO who is either buying, being bought, or plotting one of those possibilities.

A quick glance at Insurance Journal’s 2018 M&A webpage illustrates the scale of it perfectly.

The first page of results shows the most recent of which is dated today, 4 September 2018. Ten deals down, at the bottom of the page is one closed on 8 August.

One every two days.
And that was a slow month.

There are 117 more deals for the previous seven months to January.

As Raconteur’s Future of Insurance Report 2018 explains, “Deals have been driven by cheap financing, the growing importance of scale, the need to futureproof against technological advances, regulatory pressures and a desire for larger businesses to have global reach” – all highly motivating reasons to reach for a market dominant position.

But, will all these M&As live up to expectations?
Probably not.
If the high fever of acquisition produces giddy confidence, the reality offers a more modest affair, producing, according to a number of studies, a mixed bag of subsequent business performance.

What, perhaps, isn’t being factored into the calculations then is the business disrupting effects of a capital event. In all but the largest companies, the priority given to an upcoming deal can have a direct impact on the day-to-day operations. And after signing there are the inevitable integration challenges: IT systems that won’t co-operate, duplicated roles that kick-start lengthy HR processes, and, perhaps more perniciously, culture clashes and power plays that can drag on, and snuff out morale.

It’s not uncommon to hear in the 18 months following an acquisition that the best people have left, and with them, some choice pieces of business.

But the desire for growth is persistent.
And so the cycle is repeated.

Given the two-steps-forward-one-step-back nature of it, why is acquisition the insurance industry’s preferred path, when in other industries organic growth is where the attention and investment is focused?

The answer seems to boil down to one thing.
Belief that the only route to market is through underwriter relationships (addressed in our blog Are relationships enough?)
Belief that because insurance products can’t sustain any points of difference, that it’s impossible to differentiate the business in the market place.

Both are mistaken.
In fact, it is precisely because insurance products are so similar that businesses must differentiate themselves. To illustrate, let’s step out of the insurance world and take a walk down the cheese isle of your local supermarket.

You can’t get a more generic product than a block of cheddar cheese. The supermarket’s own brand cheddars come from the same creameries as the leading brand, Cathedral City. As far as the cheeses go, they are indistinguishable from one another. But every week people still choose Cathedral City, or Pilgrim’s Choice or Wyke Farms. Why?

It comes back to belief.
Belief in their story, their vision, their approach.
Belief that they care more, or that they’re better at it, or that somehow they offer something the generic supermarket branded cheeses don’t. These brands are able to drive preference, even when charging more.

To take the alternative route to growth a B2B insurance brand needs to actively engage its audience.
With its story, its vision, its approach.
Demonstrate that its people care more, or that they’re better at it, or that somehow they offer something the generic insurance businesses don’t. They need to drive preference, even when charging more.

That’s the M&A bypass – building a brand that delivers sales
So that if, one day, you wanted to sell, you can add a few more multiples of your EBITDA

For more information contact derah@freepartners.com


* If you thought a brand is just a logo, a font and a look, read our blog: What is a living brand and why do I need one

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