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08 September 2015

Financial Times: Japanese insurers look abroad for growth


Japanese companies are on the hunt for growth outside their sluggish home market and are willing to write big cheques very quickly when they find it.

Mitsui Sumitomo’s announcement on Tuesday that it had agreed to pay £3.5bn for UK-listed insurer Amlin is just the latest example in a string of deals that have involved everything from insurance and consumer products to media companies.
 
The 670p-a-share cash offer by Mitsui Sumitomo, a subsidiary of MS&AD, values Amlin at a steep 2.4 times book value. The deal, which came together in a matter of several weeks, is the latest in a succession of cross-border takeovers involving the country’s insurers.
 
It represents one of the highest book value multiples paid during a recent boom in dealmaking across the sector. According to Shore Capital, the valuation compares to 1.6 times prospective book value that Fairfax of Canada paid this year for Brit, another Lloyd’s of London insurer, and 1.5 times that New York-listed XL paid for Catlin.
 
The urgency and price of these offers reflect the struggles Japanese companies face at home, where a rapidly ageing population and weak economy have hurt the prospects for growth.
 
The hunt for revenue overseas has not come cheap. In the insurance sector, Japan’s three biggest outbound deals this year have averaged a 40 per cent premium to the stock price the day before the deal, compared with a global average of 21 per cent.
 
Japanese companies may be more willing to pay higher multiples than their western competitors because they are used to extremely low rates of return in their home markets, analysts say.
 
Meanwhile, a low cost of borrowing — driven by the Bank of Japan’s monetary stimulus — provides a cheap source of funds.
 
Insurance companies based in Japan have spent $22bn on outbound deals so far this year — at least three times as much as in any full year since 2000, according to Dealogic.
 
Full article (FT subscription required)


© Financial Times


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