Those who have read me for a long time know that my favorite insurance company is Assurant. I’m not writing tonight about how they had great first quarter earnings (see transcript), or how their investment portfolio suffered less than their competitors. Rather, it springs from a Bloomberg article that is not available on the web. It seems Assurant is talking to Countrywide (CFC) about purchasing their Balboa Insurance Group.
What makes for an intelligent acquisition? Two things: Don’t overpay, and don't flub the integration.
On overpaying, it helps if you are buying:
- part of a business rather than the whole company
- a noncore asset of the target
- and offering noneconomic benefits (e.g. joining Berkshire Hathaway, because Warren doesn’t change the culture…)
- through a negotiation, not an auction (think of MetLife buying Traveler’s Life)
- something where you can get significant expense savings
- and you are known to be prudent and fair as an acquirer.
On integrating, it helps if:
- you are integrating a business that differs from your business in at most one or two ways
- corporate cultures are similar
- the differences in technology are small
- you gain new markets or technologies that you can use in the rest of your business.
Assurant has done very well through small in-fill acquisitions where they pick up a new line of business that they can grow organically. They also have done well in occasionally buying scale in areas where they are already strong, for example, when they bought the pre-need (funeral) insurance business of Service Corp International (a very concentrated niche business line).
With Balboa Insurance Group, Assurant would deepen its penetration into lender placed homeowners insurance. Assurant is #1, and Balboa I think is #2 because of its business with Countrywide. Assurant has efficient systems — they will be able to take out costs, and deliver even better
