SPACs Break 2020 Record in Just Three Months
PNC Financial Services Group agreed to acquire BBVA USA Bancshares Inc in an $11.6 billion all-cash deal. It is the largest U.S. bank deal since the merger of BB&T Corp. and SunTrust Banks Inc. in 2019. The acquisition will make PNC the United States’ fifth largest bank based off assets. It expands PNC’s footprint to the South and Southwest from predominately the Mid-Atlantic and Midwest regions. It is expected that this will not be the only U.S. asset disposition seen in 2021 within the banking industry. Global, non-US banks are expected to dispose of U.S. assets in 2021 given global uncertainty and pressures from the pandemic.1
Insurance Technology Firm Hippo to Go Public with SPAC
Hippo Enterprises plans to go public through a merger with Reinvent Technology Partners Z, a SPAC, in a $5 billion deal. The transaction includes a $550 million private investment in public equity, with current shareholders retaining 87% of the company once it closes. Although having considered a traditional IPO, Hippo opted for a SPAC for the partnership level the transaction would give them with Reinvent. The insurtech company offers homeowners insurance to consumers with quick quotes and purchases of policies. Hippo is one of several insurtech companies looking to reinvent the insurance industry, which has lagged in embracing technology. There is an increased interest in Insurtech acquisitions to meet customer’s digital engagement demand and support employees’ new work from home needs. Deals are likely to be strategic rather than opportunistic.2 3
Wealth Managers Tap into Crypto Market
Morgan Stanley is launching access to three funds that enable ownership of bitcoin for its wealth management clients. The offering of the nascent asset class comes with restrictions such as $2 million and $5 million in assets held by Morgan Stanley for individuals and firms, respectively, accounts must be at least six months old, and only 2.5% of total net worth may be invested into these funds. JPMorgan also recently filed documents related to a new debt investment tied to a basket of stocks with crypto exposure. Goldman Sachs recently announced its intent to allow its private wealth management division clients to invest in Bitcoin. As wealth managers enter the market, increasing focus will turn to the underlying volatility of such investments as firms seek to target benchmarks and other return considerations.4 5
Industry Loss Reserves Redundant by $28 billion
Assured Research found that the property/casualty insurance industry reserves are $28 billion redundant and that some business lines’ hard market pricing will stabilize/diminish this year. The outlook is a reversal from Assured Research’s year-end 2019 estimate of a $5 billion deficiency. Much of the differences come from the COVID-plagued 2020 accident year. 41% of estimated redundancy relates to industry conservatism for the 2020 accident year. While a redundant reserve position would indicate an end to the hard market, analysts do not think that will be the case for all property/casualty insurance business lines. However, lines like private passenger auto and commercial auto, decelerating rate increases could occur in 2021.6
Concentrated M&A Interest in the Banking and Finance Industry
M&A activity is increasing within three primary banking and finance industries: Mergers of Equals (MoE), Commercial and Specialty Finance, and Mortgage companies. The MoE area expects to see banks of similar sizes seeking to benefit from achievable synergies, including cost-cutting and technology reinvestment. Commercial and Specialty Finance expect to see continued divestment of U.S. assets by global, non-U.S. banks. The mortgage field is expected to see additional deals as mortgage ecosystem providers seek additional capabilities. As banks simplify their firms’ operating models and raise capital, they will look to the divesture markets for solutions. 7
Insurance Pay Bumps Expected to Far Exceed CPI Growth
The insurance industry added almost 20,000 jobs since March 2020, with employment up 1.2% in the last nine months. Although unemployment remains high at around 6.3% for the U.S. economy, the insurance industry’s unemployment rate remains low at 2.2%. The industry continues to grow, which renders a high demand for labor, causing compensation in some niches within the industry to go up dramatically. Industry experts expect pay bumps to be substantial, especially compared to the rest of the economy.8
Largest Transactions Closed
- National General Holdings Corp.
- The Allstate Corporation
- Security Life of Denver Insurance Company/Security Life of Denver International Limited
- Resolution Life U.S. Limited
- Radius Bancorp Inc.
- LendingClub Corporation
- Linco Bancshares, Inc.
- First Mid Bancshares, Inc.
- Bay Banks of Virginia, Inc.
- Blue Ridge Bankshares, Inc.
- Portfolio of life settlement policies of 2018 Life Settlement, LP
- Willamette Community Bank
- People's Bank of Commerce
- Personal Lines Insurance Business of United Property and Casualty Insurance Company, Inc.
- HCI Group, Inc.
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes