insurance m&a update 2017 & 2018 outlook - bkd · anthem, inc. antm $247.85 154.37 ......

800.644.1704 | bkdcorporatefinance.com

INSURANCE MERGERS & ACQUISITIONS PERSPECTIVES

2017 & 2018 OUTLOOK

bkdcorporatefinance.com

75, 15.3% 80, 13.5%

415, 84.7%514, 86.5%

490

594

0

200

400

600

2016 2017

Tran

sact

ion

Co

un

t

Insurance Transactions by Subsector

2016 vs. 2017

Underwriters Brokers

COMMENTARY & OUTLOOK

2

The insurance industry remained an active mergers and acquisitions (M&A) market in the second half (2H) of 2017, with a 38.2 percent year-over-year increase from the same period in 2016, with 333 total transactions for 2H 2017 and an aggregate deal value of $8.9 billion, bringing the full year of 2017 to 594 transactions and $12.8 billion in aggregate deal value.

Passed at the end of 2017, the Tax Cuts and Jobs Act will likely provide clarity for insurance industry M&A in 2018. While there were a number of components in the tax reform bill that could provide mixed results for the industry, the lowering of the corporate tax rate could make U.S. insurance sector assets more attractive to the market.

Rising interest rates in 2018 are likely to drive higher levels of growth and profitability for underwriters. After raising the benchmark rate from 1.25 percent to 1.5 percent in late 2017, Federal Reserve officials have projected three interest rate hikes in 2018. The median estimate has the federal funds rate at 2.1 percent by year-end 2018, with the 2019 median forecast at 2.7 percent.

Wholesale regulatory relief is unlikely for the insurance industry, as the Dodd-Frank Act regulatory framework appears likely to stay in place. However, the tone of U.S. regulators appears to have materially changed with a more collaborative approach and a better working relationship with regulated firms.

Global growth prospects appear strong going into 1H of 2018. However, the reappearance of volatility in the financial markets, tighter monetary conditions and geopolitical tensions could provide economic stumbling blocks. However, an ongoing focus on cutting costs, achieving scale, diversification and technology are expected to support continued strong insurance industry M&A activity in 1H 2018.

CONTENTS

Industry Segment Trends

Insurance Underwriters

Life & Health

Property & Casualty

Insurance Brokers

BKDCF Experience

BKD Services

About BKD Corporate Finance

ABOUT BKDCF

Founded in 1994, BKD Corporate Finance helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

INSURANCE CONTACTS

Source: S&P Global Market Intelligence

Jason Corson

Director

417.865.8701

[email protected]

Tony Giordano

President & Managing Director

303.837.3562

[email protected]

Wyatt Jenkins

Vice President

417.865.8701

[email protected]

mailto:[email protected]




6.00x

7.00x

8.00x

9.00x

10.00x

11.00x

12.00x

13.00x

14.00x

15.00x

Public Comparables

EV/EBITDA

L&H Insurance UWsP&C Insurance UWsS&P 500

TRENDS FOR INSURANCE UNDERWRITERS

3

Public Comparables*

Source: S&P Global Market Intelligence & Capital IQ

Number of Deals by Purchase Price

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Less than $25MM 33 25 27 33 27 28 29 18 11 22 10

$25MM - $50MM 12 4 6 6 6 4 7 8 6 5 1

$50MM - $100MM 5 7 1 2 8 3 4 4 5 3 2

$100MM - $1B 16 14 6 23 13 11 8 16 8 13 9

More than $1B 6 3 3 3 3 1 1 2 5 2 5

Undisclosed 17 17 26 26 34 27 18 8 26 30 42

TOTAL 89 70 69 93 91 74 67 56 61 75 69

*Large cap public comparables include publicly traded companies with over $10 billion in market capitalization; mid cap publiccomparables include publicly traded companies with $2 billion to $10 billion in market capitalization; small cap public comparables include publicly traded companies with less than $2 billion in market capitalization

0.88x

0.84x

1.09x

0.95x

1.13x

1.35x

Small Cap

Mid Cap

Large Cap

EV/Revenue

NTM LTM

8.69x

9.19x

10.58x

8.81x

9.28x

10.23x

EV/EBITDA



4

Select Transactions

Public Comparables by Market Capitalization

Source: S&P Global Market Intelligence & Capital IQ

LIFE & HEALTH INSURANCE UNDERWRITERS

48

31 3041 42

4941

2638 36 38

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number of Deals

12/3/17: CVS Health Corp. Acquires Aetna Inc.• In a blockbuster deal worth $69 billion, CVS Health Corp. announced its

acquisition of Aetna Inc. With the transaction, the national drugstore operator seeks to tackle soaring healthcare spending through lower-cost medical services in its pharmacies.

10/27/17: Aquarian Holdings, LLC Acquires Investors Heritage Capital Corporation• New York-based Aquarian Holdings announced its intent to purchase Frankfort,

Kentucky-based Investors Heritage Capital Corporation (IHCC) for $60.5 million. The transaction will give IHCC access to capital to support its continued growth.

Deal Value/Book Value: 435%Deal Value/Revenue: 1.13xDeal Value/EBITDA: 17.56x

Deal Value/Book Value: 84%Deal Value/Revenue: 0.95xDeal Value/Earnings: 41.34x

in millions of dollars

Company Ticker

Recent

Price

(1/31/18)

52-Week Price

Range

TTM

Revenue

TTM

EBITDA

Enterprise

Value

EBITDA

Margin

EV to

Sales

EV to

EBITDA

UnitedHealth Group Incorporated UNH $236.78 156.49 - 250.79 201,159 17,454 251,356 8.7% 1.25 14.40

Anthem, Inc. ANTM $247.85 154.37 - 267.95 90,039 5,876 80,415 6.5% 0.89 13.69

Prudential Financial, Inc. PRU $118.82 97.88 - 127.14 53,957 8,238 69,988 15.3% 1.30 8.50

Aetna Inc. AET $186.82 118.04 - 194.4 60,535 5,685 66,393 9.4% 1.10 11.68

Cigna Corporation CI $208.35 141.93 - 227.13 41,616 4,935 53,113 11.9% 1.28 10.76

Aflac Incorporated AFL $88.20 66.50 - 91.73 21,667 4,072 39,965 18.8% 1.84 9.81

Humana Inc. HUM $281.83 189.01 - 293.35 53,767 3,959 34,573 7.4% 0.64 8.73

Lincoln National Corporation LNC $82.80 61.45 - 86.68 14,257 2,335 22,051 16.4% 1.55 9.44

Principal Financial Group, Inc. PFG $67.60 56.12 - 75.59 14,093 2,607 20,457 18.5% 1.45 7.85

Centene Corporation CNC $107.24 63.12 - 112.42 45,810 1,770 19,032 3.9% 0.42 10.75

Average Top 10 59,690 5,693 65,734 11.7% 1.17 10.56

Average Large Cap (Over $10B) 55,290 5,327 61,095 11.9% 1.18 10.40

Average Mid Cap ($2B - $10B) 9,663 831 7,373 14.4% 1.42 9.52

Average Small Cap (Under $2B) 750 78 1,019 15.0% 2.35 16.58



5

Public Comparables by Market Capitalization

*There were five transactions in 2017 with undisclosed target statesSource: S&P Global Market Intelligence & Capital IQ

PROPERTY & CASUALTY INSURANCE UNDERWRITERS

2017* Number of Deals by State Number of Deals by Year

Year # of Deals

2007 58

2008 50

2009 49

2010 65

2011 64

2012 42

2013 41

2014 43

2015 37

2016 48

2017 42

12

6

2 1 1

11

1

1 1

1

2

21

2

1

1 1

152


Company Ticker

Recent

Price

(1/31/18)

52-Week Price

Range

TTM

Revenue

TTM

EBITDA

Enterprise

Value

EBITDA

Margin

EV to

Sales

EV to

EBITDA

Chubb Limited CB $156.15 127.15 - 157.50 32,243 4,492 86,374 13.9% 2.68 19.23

The Travelers Companies, Inc. TRV $149.92 113.76 - 150.42 28,902 3,912 46,915 13.5% 1.62 11.99

The Allstate Corporation ALL $98.77 75.00 - 105.36 38,524 5,023 42,846 13.0% 1.11 8.53

The Progressive Corporation PGR $54.10 36.74 - 58.25 26,816 2,526 35,280 9.4% 1.32 13.97

CNA Financial Corporation CNA $54.16 40.76 - 55.62 9,542 1,559 17,261 16.3% 1.81 11.07

Markel Corporation MKL $1,147.69 909.00 - 1157.3 6,062 327 16,490 5.4% 2.72 50.47

Arch Capital Group Ltd. ACGL $90.94 86.58 - 102.6 5,195 849 16,470 16.3% 3.17 19.40

Cincinnati Financial Corporation CINF $76.90 68.24 - 81.98 5,732 836 12,786 14.6% 2.23 15.29

XL Group Ltd XL $36.84 33.77 - 47.27 11,328 -186 11,200 -1.6% 0.99 (60.22)

Average Top 10 18,260 2,149 31,736 11.2% 1.96 9.97

Average Large Cap (Over $10B) 18,260 2,149 31,736 11.2% 1.96 9.97

Average Mid Cap ($2B - $10B) 3,731 214 4,426 6.9% 1.62 35.15

Average Small Cap (Under $2B) 719 56 793 8.0% 1.10 18.39


TRENDS FOR INSURANCE BROKERS

6

*Other consists of title, financial guaranty and mortgage guaranty transactionsSource: S&P Global Market Intelligence

050

100150200250300350400450500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Property & Casualty 159 185 116 155 173 171 131 172 256 179 187

Life & Health 54 78 44 50 66 74 34 61 66 63 114

Multiline 35 18 20 26 51 90 60 92 137 177 199

Other* 13 10 5 3 7 5 3 8 7 10 14

Number of Deals

261Total 291 185 234 297 340 228 333 466 429 514

Top 10 Buyers in 2017

Buyer Buyer Type

Private

Equity-

Backed

Private Equity Investors# of

Transactions

% of Total

Transactions

Acrisure, LLC Insurance Broker

ABRY Partners, Ares Capital, HarbourVest Partners, MidCap Financial Services & Veronis Suhler Stevenson

67 13.0%

Hub International Limited Insurance Broker - - 42 8.2%

Arthur J. Gallagher & Co. Insurance Broker - - 25 4.9%

AssuredPartners, Inc. Insurance Broker Apax Partners & Canada Pension Plan Investment Board

23 4.5%

NFP Corp. Insurance Broker HPS Investment Partners, Stone Point Capital & Madison Dearborn Partners

20 3.9%

National Senior Insurance, Inc. Insurance Broker - - 18 3.5%

Alera Group, Inc. Insurance Broker - - 15 2.9%

Hilb Group, LLC Insurance Broker ABRY Partners 13 2.5%

RSC Insurance Brokerage, Inc. Insurance Broker HarbourVest Partners & Kelso Private Equity

8 1.6%

Brown & Brown, Inc. Insurance Broker - - 6 1.2%

TOTAL 237 46.1%


TRENDS FOR INSURANCE BROKERS

7

Source: Capital IQ

Public Comparables


Company Ticker

Recent

Price

(1/31/18)

52-Week Price

Range

TTM

Revenue

TTM

EBITDA

Enterprise

Value

EBITDA

Margin

EV to

Sales

EV to

EBITDA

Marsh & McLennan Comp. MMC $83.52 67.32 - 86.54 14,024 3,331 47,120 23.8% 3.36 14.15

Aon plc AON $142.17 109.82 - 152.78 9,998 2,287 39,294 22.9% 3.93 17.18

Willis Towers Watson Public Ltd. WLTW $160.47 120.87 - 165.00 8,116 1,886 25,020 23.2% 3.08 13.27

Arthur J. Gallagher & Co. AJG $68.32 53.19 - 70.55 6,100 906 14,880 14.8% 2.44 16.43

Brown & Brown Inc. BRO $52.48 41.10 - 53.77 1,857 580 7,626 31.2% 4.11 13.15

AUB Group Limited AUB $10.17 7.89 - 10.95 208 55 728 26.2% 3.50 13.36

Average 6,717 1,507 22,445 23.7% 3.40 14.59

9.00x

10.00x

11.00x

12.00x

13.00x

14.00x

15.00x

16.00x

Public Comparables Trailing

& Forward EV/EBITDA

LTM Trailing EV/EBITDA NTM Forward EV/EBITDA

Median 1-Year Trailing

EV/EBITDA of 14.79x

Median 1-Year Forward

EV/EBITDA of 12.95x


Bryan Adams | Managing Partner

Integrity Marketing Group | Highland Village, Texas

INSURANCE EXPERIENCE

8

“The BKDCF team was instrumental in helping us prepare for and execute this transformational and rewarding transaction. Finding the right investor that checked all of the boxes for our rapidly growing company seemed a very daunting task but the trusting relationship that we built with BKDCF while exploring our strategic options ensured that we were working with the right team that always had our best interests in mind. BKDCF had an excellent understanding of our business model…I would strongly recommend the BKDCF team for any business owner exploring their liquidity or growth capital options.”

SERVICE OFFERING HIGHLIGHT

Debt & Equity Financing

Your company may need permanent or long-term capital to finance an acquisition or management buyout. Perhaps you have outgrown your current lending relationship and need to pursue a larger credit facility with a regional or national bank. BKD Corporate Finance can offer alternatives.

Through our structured marketing strategy, we can help you find cost-effective financing alternatives for:

• Venture capital• Senior & subordinated debt• Asset-based financing• Recapitalizations• Equity

We understand the importance of evaluating and selecting financing strategies that achieve low cost of capital while mitigating potential risks to you and your company. We work with you through each phase of the process, helping you develop a financing strategy and identify financing sources that align with your objectives. Our team has an extensive network of senior lenders, mezzanine investors and private equity funds that can help unite you with the right partner.


BKD SERVICES

Abundant services.

Sheer precision.

BKD, LLP offers a full range of services and industry-focused expertise to provide you with insightful solutions and help you stay a cut above the competition.

FINANCIAL

ASSURANCE• Audit, review & compilations• Benchmarking• Internal audit• Internal control studies• SEC filings• SOX 404 compliance

CONSULTING• Accounting outsourcing• Bankruptcy consulting• Budgeting & financial planning• Cost accounting• Employee benefit plan

structuring & administering• ESOP feasibility analysis• Forecasts & projections

FEDERAL & STATE TAX

PLANNING & COMPLIANCE• Compensation planning• Corporate tax planning• Inventory tax planning• R&D tax credit enhancements• Real estate cost segregation

studies• Restructuring planning• State & local tax planning

FORENSICS & VALUATION

CONSULTING• Bankruptcy services• Business valuations• Fraud prevention• Litigation support

INTERNATIONAL TAX

STRATEGIES• DISC• Expatriate assignment services• Foreign tax credit planning• Global structuring support• Indirect global taxes• Transfer pricing

INVESTMENT & FINANCIAL

PLANNING• Estate & gift planning• Family tax planning• Investment management• Personal wealth planning• Retirement planning

TRANSACTION SERVICES• Federal, state & local tax

diligence• Financial diligence• Operations diligence• Technology diligence

GROWTH & ADVISORY

INVESTMENT BANKING• Mergers & acquisitions• Company sales & divestitures• Debt & equity recapitalizations• Management buyouts• Affiliations• Succession planning• Strategic options analysis

ECONOMIC DEVELOPMENT• Expansion projects• Grants & public incentives

INTERNATIONAL MARKET• Development• Exporting• Direct investment• Licensing• Acquisitions

OPERATIONS MANAGEMENT

PERFORMANCE ENHANCEMENT

ADVICE & KNOW-HOW (PEAK)

METHODOLOGY• Business process improvement• Decision costing• Inventory optimization• Lean manufacturing• Profit improvement

TECHNOLOGY

APPLICATIONS SOFTWARE• Best-Abra• MAS 90, 200 & 500• Microsoft CRM• Microsoft Dynamics AX• Microsoft Dynamics GP

IT SERVICES• IT assessments & planning• IT control reviews• Project management assistance• Security solutions & penetration

testing

STRATEGIC TECHNOLOGY• E-business planning• IT assessments & planning• Systems selection & implementation

9

Consumer

Services &

Products

Technology,

Media &

Telecom


ABOUT US

Construction &

Engineering

Financial

Services

Health

Care

Manufacturing

&

Distribution

Business

Services

Energy

INDUSTRY FOCUS

BKDCF, a wholly owned subsidiary of BKD, LLP, helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

Founded in 1994, BKDCF is staffed with experienced investment bankers and financial analysts. In addition, the firm draws on the resources of BKD with its network of accountants, auditors, tax professionals, business consultants and industry-specific consultants.

BKDCF is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation.

The professionals of BKDCF have more than 100 years of combined experience

helping company owners plan for and execute their growth and exit strategies.

From managing the sale of a company to negotiating the acquisition of a

competitor or raising debt and equity capital to improve financial and operational

flexibility, BKDCF can help you to develop a specific course of action for achieving

your desired results.

ABOUT US

10

CONTACT US – INSURANCE TEAM

Jason Corson

Director

Springfield, MO

417.865.8701

[email protected]

Tony Giordano

President & Managing Director

Denver, CO

303.837.3562

[email protected]

Wyatt Jenkins

Vice President

Springfield, MO

417.865.8701

[email protected]




insurance m&a update 2017 & 2018 outlook - bkd · anthem, inc. antm $247.85 154.37 ......

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