Late last year, Novarica noted that the pace and scope of the M&A work in the insurance industry were evolving as carriers sought to align their business objectives and go to market strategies as well as to find the best way(s) to allocate their available capital. This M&A activity changes the competitive landscape for organizations as they face newly energized competitors or organizations that can compete in new and different ways based on the resulting operational scale.
Backstory for a New Decade
The new decade is only a few weeks old, but the deals keep on coming! As December closed out, the New York Life announced the acquisition of the $6.3B CIGNA group life and disability business. This deal was noteworthy because of its size and the relative rarity of a large mutual carrier growing some way other than organically. CIGNA noted that the acquisition allows them to focus on core businesses while paying down the debt from their acquisition of PBM Express Scripts. Meanwhile, rival Voya has already spun off several businesses and is reportedly open to selling the balance of the company.
It is important for CIOs on the buy-side of these transactions to understand that these are large, complex undertakings that can bring great promise for the future, along with some surprising risks. Thinking of these transactions as simple, incremental projects that can they can treat as “on the job training” experiences can be a significant and costly mistake for CIOs and the organizations they lead. Transition Service Agreements (TSAs) provide an important framework for getting deals done, but failing to achieve specific milestones can have financial and operational consequences that are important to understand, as the sailing officer might say, before the boats hit the water.
Planning is Critical–Learning is Continuous
One helpful way to approach M&A is to consider the parallels between an M&A transaction and the work required to support disaster recovery and business continuity planning. A well-crafted plan of action is critical in both cases. Developing these plans long before organizations need to enact them in response to an actual event can allow organizations to consider a wide array of options and frame decisions in a governance model that will later allow for speed and durability.
Decision velocity often correlates with improved financial outcomes (presuming an organization knows what it wants to get from a transaction in the first place). If a transaction is going to build scale on the acquiring company’s technology ecosystem, it creates a logical framework that allows things to move faster than in a scenario where the target company has technical capabilities that require assessment against other options. This decision-making process introduces a critical time for analysis and the potential for new and complex human capital questions.
Neither approach is right or wrong; the goal is to have a point of view when executing the transaction so that the simple decisions can leverage organizational muscle memory, freeing capacity to consider important and emerging strategic issues or items that come as a surprise. Due diligence only takes an acquiring company so far; every transaction will introduce unexpected artifacts that the organization will need to address in a timely fashion. The only way a CIO and their IT organization can truly “major in majors” is if they have the organizational capacity to triage issues and manage routine items as quickly as possible.
Right Resources, Right Time, Right Outcome
Having an M&A playbook, much like a DR/BCP plan, is a good way to maintain a shared framework for capturing assumptions, memorializing lessons learned and training broader groups of associates when a transaction is at hand. The memorialization is a key activity, ensuring that the playbook remains a living archive. Every transaction is different, and each provides important lessons learned that represent a virtuous cycle, improving outcomes and reducing risk over time.
One course of action that carrier CIOs may employ is the use of third-party consulting resources. Third-party consulting resources can be an effective part of the plan as long as they have relevant, practical experience in insurance, and especially in relevant lines of business. While there are similarities between different acquisition transactions, it is crucial to understand the details associated with highly-regulated industries, lest the effort becomes a carrier-funded “OJT” event for the consultancy.
It is also important to recognize that M&A activity requires dedicated focus. Thinking about these transactions as something to execute alongside business-as-usual functions often produces suboptimal results for both. Tapping into Novarica’s experiences in these types of transactions can also have a major, positive impact on outcomes.
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