Punctuated only by the news of increasingly desperate efforts to find a missing plane in the Indian Ocean, the market awoke from a soporific start to 2014 on 14 April when Endurance launched their $3.2 billion bid to acquire fellow Bermudian based specialty insurer Aspen. In addressing their offer directly to Aspen’s shareholders without the support of the company’s board of directors, Endurance set the scene for an increasingly bitter exchange of words between the two firms that have grabbed the headlines since. That the deal was orchestrated by Endurance’s CEO John Charman, one of the industry giants of the last few decades but no stranger to controversy, has added further spice to what has already become a very rowdy affair.
Hostile takeover bids are comparatively rare and according to the Financial Times the number has fallen to a decade-low, representing under 5% of all M&A activity. The majority of them also fail. The two sectors in more recent years where aggressive acquisition tactics have found a home are in mining and pharmaceuticals. Where the target’s value substantially comprises its mineral extraction rights or drug licenses and patents then one might argue that the means of acquiring these assets can justify the ends: in other words it does not matter especially how friendly the approach is.
Of course insurance is a different story and particularly so at the specialist end of the industry. The evolution of risk modelling has lowered barriers to entry. The value of a brand in attracting and retaining business flows has also diminished. More than ever insurance is a “people business” and even in large companies like Aspen, the firm’s profitability is dependent on the skills and capabilities of a relatively small cadre of senior employees who are highly mobile. The risk of losing the on-going loyalty of the target company team is the principal reason why we have seen so few successful hostile takeovers in the insurance industry. The battle for the hearts and minds of Aspen’s underwriters is as important as it is to persuade the company’s shareholders of the financial merits of the offer on the table. The most deadly poison pill of all to swallow would be to end up owning a company stripped of its key underwriting talent: a point Endurance are sure to be cognizant of as the rhetoric escalates.
6 thoughts on “On Hostile Takeovers”
Roger, this is an excellent post which reflects the accuracy and facts of certain “hostile take overs” without considering key in-house talent for continuous success.
A great point well made Roger. Successful mergers really are all about people and that is supported by recent research findings by Cass Business School. As a veteran of a market still so reliant on the skills and relationships of its key people I would like to think that if successful, John Charman has a plan to swiftly win those hearts and minds.
Nicely written blog and on a subject which may well become prevalent as current M&A trends develop. Not engaging with the key assets within the target company team will inevitably alienate people from detailed discussions as and when they occur. Watch this space!
Timely post Roger, particularly in light of today’s news in pharma that Pfizer could well go hostile in its bid to take control of Astra Zeneca http://www.bbc.co.uk/news/business-27185027
Good piece Roger; I think more generally as consolidation increases this issue of retaining the (people) assets will arise more and more – for example Atrium has just lost Bruce Carman and the Aviation War team shortly after the sale of the business. In my admittedly limited experience I sense it is the best people who go and the mediocre tend to stay, which exacerbates the problem.
Much has been said about mergers failing on the hearts and minds issue but one area which constantly surprises me is the limited information gathering that acquiring businesses do – often narrowly focused on financial due diligence and very little on the reputation of the team that they are buying.
Thanks Ben. Of course there is even less due diligence with a hostile takeover than a friendly one.