Greater strategic alignment required for insurance M&A | KPMG | SG

Greater strategic alignment required for insurance M&A

Greater strategic alignment required for insurance M&A

While insurance executives and shareholders expect their M&A transactions to help deliver transformative value, our survey suggests that most organizations will need to create much closer alignment between their corporate strategy development and their M&A activities if they hope to deliver on these expectations.

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Strategy-aligned M&A

Insurance leaders clearly recognize the need for their transactions to support their broader business agenda. However, according to our research, just 43 percent of respondents said they have a dedicated corporate development and M&A team within their organization. And most worry that their efforts may not be strategically driven.

Consider, for example, the fact that 37 percent of all respondents said that their approach to M&A is largely reactive and not necessarily aligned to overall strategy. Or the fact that just 47 percent of those with dedicated M&A teams thought that their objectives were highly aligned with strategy when identifying opportunities.

Deal evaluation objectives seem equally reactive, even though respondents ranked ‘alignment to corporate strategy’ as the most important factor for successful deal evaluation. Only half were able to claim that their deal evaluation objectives were highly aligned, particularly when it comes to identifying risks associated with integrating or separating the target’s operating model.

Taking a holistic approach to understand the drivers of M&A, even before evaluating potential acquisitions and partnership opportunities is critical. Insurers will need to look beyond the traditional financial due diligence aspects of evaluating the deal to consider the true strategic fit. This will require a deeper level of strategy development and design-thinking than ever before so that the alignment and value of potential targets is clear.

Evaluating strategic-fit

For many insurers, the challenges with strategy-aligned deal evaluation may be more about the lack of internal skills and capabilities than desire. Indeed, when asked to rate the capabilities of their corporate development and M&A team, 61 percent rated their ability to evaluate strategic fit of a target’s business model as moderate to high. Furthermore, 50 percent believe they are less aligned when it comes to evaluating potential risks associated with integrating/separating the target’s operating model.

9 Levers of Value

KPMG’s 9 Levers of Value framework helps insurers with their deal evaluation by aligning their strategy to execution throughout the M&A process. The framework allows management teams to drive alignment between their financial, business and operating models. By focusing on the Levers to define your strategy, it becomes easier to evaluate the target’s potential fit. This means insurers are able to achieve a much clearer view of how value from the acquisition or partnership is created.

The levers to pull, and questions to consider:

  1. Financial outcomes, structuring, investment and capital allocation:What are the 3-5 year financial and strategic objectives?
  2. Markets: Does the current portfolio of businesses support the financial and strategic objectives?
  3. Propositions and brands: How should the portfolio of propositions and brands be managed over time to deliver our financial and strategic objectives?
  4. Ccustomers and channels: What changes to the operating model can enable customer/channel performance?
  5. Core business processes: What are our priority business processes to deliver the financial outcomes, and a winning business model?
  6. Technology and operations infrastructure: What are the priority infrastructure and technology elements that will be required to enable the strategy?
  7. Organizational structure, governance, risk and controls: What does the organizational structure need to be to enable the strategy?
  8. People and culture: What leadership is required to drive the transformational change and what culture and behaviors are required as enablers?
  9. Measures and incentives: What will you measure to monitor progress on strategy, identify issues and enable action where required?

 

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