Winter 2007 / No. 70
Who can we buy?
This is
easily the question we are asked most frequently by new entrants
in the voluntary business. And the answer stays the same. There
are a few companies available, but the asking prices tend to
be unrealistic. There are a group of companies that are positively
not for sale, a couple that can be approached, and a lot you
wouldn’t want to buy.
There has been relatively little consolidation in the voluntary
industry in the last two or three years and that points to one
of our weaknesses as an industry. The few carriers that are available
are in the “everything has a price” category: public
companies that are always interested in maximizing shareholder
value (translates to “high price”), mutual companies
that are struggling with their core business, etc. There aren’t
any bargains in this small group. Another 20 or so companies
have freestanding voluntary business units but as a generalization,
they are either performing well or are key strategic parts of
the overall business. Thus, they are not for sale.
But most (more than 50 percent) of the carriers can’t
be acquired, even if the carrier wanted to sell them. And that’s
because they still have not developed a true voluntary business
and strategy. In other words, voluntary is considered a product
line extension or an accommodation. Simply, there is nothing
to buy. An inquirer wouldn’t get distribution. And the
products are probably not all that attractive.
In most of the situations where an acquisition has been a possibility,
the purchase comes down to two elements: the inforce block and
the distribution. The block can be valued (not always easily),
but the distribution valuation is always a problem. We have yet
to see a case where it was undervalued. Distribution is fleeting,
especially after an acquisition. And so, most of what passes
for merger/acquisition activity is simply a block purchase.
This lack of acquisition activity does not indicate strength;
it highlights our weakness. When we have more companies with
sustainable voluntary business models, there will be more to
sell and more to buy.
So bring on the acquisitions! We look forward to that day and
the vitality and strength it will demonstrate. |
