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    Banking, Finance & Insurance Q4 2020

    Q4 2020 Banking Finance Insurance

    Industry Trends

    COVID-19 Impact on M&A

    The Banking, Finance & Insurance industry saw nearly 15% increase in monthly transaction volume in December (54 transactions) compared to the same month in 2019 (47 transactions). Strategic buyers drove nearly 95% of all transactions (473 transactions) between March 22 – December 31. Nearly identical to 2019, which saw nearly 96% of transactions (513 transactions) completed by strategic buyers in the same period. Over 75% of the acquisitions made between March 22 – December 31 (381 transactions) were in the insurance subsector. Despite the strong December, industry M&A volume is down 6% (504 transactions) during the time frame of March 22 – December 31 compared to the same period in 2019 (536 transactions).

    PNC Financial Services Group to acquire BBVA USA Bancshares Inc.

    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

    U.S. Government Passes Second Round of Stimulus

    Congress passed $284 billion in another round of Paycheck Protection Program loans as part of another economic stimulus package. This round of funding limits companies to $2 million or less and limits company size to 300 employees or less. The bill also changes the fees banks receive for processing the loans. Banks will receive the lesser of 50% of the principal amount or $2,500 for loans up to $50,000, 5% for loans between $50,000 and $350,000, and 3% for loans larger than $350,000. The first round of Paycheck Protection Program loans was deemed successful and fostered new customer relationships for many banks in the U.S., which is expected to continue with this new funding round.2

    Zurich Insurance to Acquire MetLife Inc’s Car and Home Insurance Unit

    Zurich Insurance, parent company of Farmers Insurance, announced its agreement to acquire MetLife Inc’s car and home insurance in a $3.94 billion all-cash deal. The deal makes Farmers the seventh largest insurer in the U.S. by property-casualty premium volume. The move diversifies Farmers sales strateg and geographic footprint and increases the scale of Farmers, a strategy that many insurers are adopting.3

    MassMutual Purchases $100 Million in Bitcoin

    Massachusetts Mutual Life Insurance Co. purchased $100 million in Bitcoin from cryptocurrency manager NYDIG. The purchase is for its general investment fund and solidifies the firms move into the class of cryptocurrencies. The investment represents a total of 0.04% of MassMutual’s general investment fund, but leaves the door open for future investment into Bitcoin or other cryptocurrencies. Bitcoin and other cryptocurrencies are viewed as a hedge against inflation and finanical turmoil.4

    Fire Hot Demand for Ice Cold Supply Chains

    Private Equity Groups are taking the lead with aggressive investing in medical logistic companies . With the rise in demand for transport fragile distribution systems, investors are interested in securing their market share in this industry. Investors were interested in the cold-chain industry prior to the pandemic given the significant biologic drugs that need to be kept at Antarctic temperatures. The pandemic has increased interest in this market sector, and is expected to continue in 2021.5

    SPAC Fueling Industry Growth

    Private Equity firms remained active in 2020 due to significant dry powder. This increased activity level is expected to continue in 2021, with a growing reliance on special purpose acquisition vehicles (SPAC) bringing alternative forms of capital. In 2020, 4x the number of SPACs were raised when compared to 2019, for a total of 242. The average size was near 10x the 2009 amount, roughly $335MM. Companies have been taking an ecosystem view, with alternative deal models such as J.V.s, alliances and divestments enabling strategic business shifts.6 7

    Core Assets Focus within Insurance Industry

    Depressed interest rate environments continue to pressure insurance companies, driving an expected rise in divestitures of non-core business assets driven by pressure on investment returns and profits, especially for carriers managing capital intensive segments like life and annuity sub-sectors. These non-core assets may be exited through restructurings, divestitures or other deal activity, evidenced by AIG’s, Venerable and Equitable Financial Life Insurance and American Financials’ recent deals.8

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Life and Disability Insurance Business of Cigna Corporation
    • New York Life Insurance Company
    • $6,300.00
    • OneDigital Health and Benefits, Inc.
    • Onex Corporation
    • $960.00
    • BAC Florida Bank
    • Banco Bradesco S.A.
    • $501.00
    • GAINSCO, Inc.
    • State Farm Mutual Automobile Insurance Company
    • $400.00
    • Armfield, Harrison & Thomas, LLC
    • BRP Group, Inc.
    • $327.00
    • AIM Bancshares, Inc.
    • Heartland Financial USA, Inc.; First Bank & Trust
    • $282.00
    • Insgroup, Inc.
    • Baldwin Krystyn Sherman Partners, LLC
    • $279.00
    • Kingsbridge Holdings, LLC
    • Solar Capital Ltd.; Solar Capital Partners, LLC
    • $216.00
    • Seacoast Commerce Banc Holdings
    • Enterprise Financial Services Corp
    • $157.00
    • People's United Insurance Agency, Inc.
    • AssuredPartners, Inc.
    • $120.00

     

    Source S&P Capital IQ as of 1/12/2021 and PCE Proprietary Data

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    Data Assumptions

    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.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Chang, Ellen. "PNC-BBVA Bank Merger: What You Need to Know." U.S. News & World Report. U.S. News & World Report, 4 Dec. 2020.
    2. Bennett, Alison, and Polo Rocha. "Fiscal Stimulus Bill Offers $284B for SBA Aid Program; Allows 2nd Loans." S&P Global Market Intelligence. S&P Global, 21 Dec. 2020. Web. 06 Jan. 2021.
    3. Scism, Leslie, and Julie Steinberg. "MetLife to Sell Car and Home Insurance Unit to Zurich for Nearly $4 Billion." The Wall Street Journal. Dow Jones & Company, 11 Dec. 2020. Web. 06 Jan. 2021.
    4. Kharif, Olga. "169-Year-Old MassMutual Invests $100 Million in Bitcoin." Bloomberg.com. Bloomberg, 10 Dec. 2020. Web. 06 Jan. 2021.
    5. Spegele, Brian, and Laura Cooper. "Risky Loans Secure Private-Equity Payouts Despite Downturn." The Wall Street Journal. Dow Jones & Company, 17 Dec. 2020.
    6. Merced, Michael J. De La. “The Year in Deals Can Be Summed Up in 4 Letters.” The New York Times, The New York Times, 19 Dec. 2020.
    7. “Conditions Ripe for Already Resilient M&A Activity to Accelerate in 2021 and Beyond.” EY, EY, 14 Dec. 2020.
    8. Marra, John, and Gregory McGahan. “Insurance Deals Insights: 2021 Outlook.” PwC

     

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