Tokio Marine Holdings of Japan said Wednesday that it has agreed to buy U.S. specialty insurer HCC Insurance Holdings Inc (HHC) for $7.5 billion, making the acquisition the largest by a Japanese company so far this year and the largest ever by a Japanese insurer. Before the latest deal, the Japanese insurer had made $8.8 billion worth of purchases in North America.
Tokio Marine to pay $78 in cash per share
Thanks to an aging population sapping demand for policies, Japanese insurers are looking for ways to spread risks and enhance revenues overseas. The latest deal marks the intensifying pressure on corporate Japan to find growth in the face of a dwindling domestic population. Japanese companies have been snapping up overseas firms at a record space and fueling urgency to their overseas M&A spree.
The latest deal envisages Tokio Marine, based in Tokyo, to pay $78 a share for all the outstanding shares of Houston-based HCC. The offer signifies a 37.6% premium to HCC’s closing price on Tuesday. The transaction is expected to close in the fourth quarter, subject to approval by HCC’s shareholders and regulators.
According to data compiled by Bloomberg, the median multiple-to-book value in insurance takeovers worth $1 billion or more over the past five years globally is 1.14, while Tokio Marine’s latest deal is done at 1.9 times HCC’s book value. Some analysts point out that the latest deal is “not cheap but not necessarily unreasonable” and that the deal is in line with Tokio Marine’s history of paying “full price” for high-quality businesses with low risk and decent growth.
At a press conference, Tokio Marine President Tsuyoshi Nagano said, “The company is indeed expensive. The stock price from the start was high, so we put a premium so we can gain control.” He pushed forward with the HCC deal even after the yen dipped to a 13-year low earlier this month, making overseas purchases pricier. Nagano added, “We are not worried about the foreign-exchange rate, we care only if the company is good and profitable.”
Japanese insurers announced $27.5 billion acquisition
Interestingly, the premium Tokio Marine offered almost exactly matches what Japanese insurers have paid on average over the past five years, Bloomberg data reveals. Globally, premiums in insurance takeovers averaged 23.7% in that period.
Before the latest deal, corporate Japan had announced over $29 billion of outbound M&A deals since the start of this year – a pace that marks an increase on the same period last year, highlighting that the policies of Abenomics have revived Japan’s appetite for expansion.
Japanese insurers have announced $27.5 billion worth of acquisition abroad in the past five years, with Dai-Ichi Life’s $4.5 billion purchase of Protective Life last year being the largest until today. Dai-Ichi President Koichiro Watanabe indicated in an interview that they plan to build on the acquisition of Protective Life to further expand overseas.
Several Japanese companies are also seeking to grow outside their home country, including Nippon Life Insurance Company and Sumitomo Life Insurance Company, taking stakes to tap the rapidly expanding Southeast Asian market.
Tokio Marine’s domestic rival, MS & AD, is also understood to be eyeing a number of takeover targets in the U.S., which is the world’s largest insurance market. Besides, Sumitomo Mitsui is also considered to be the closest to announcing a foreign acquisition.