The failed takeover bid for the mutual insurer LV= by the private equity group Bain Capital was hardly the first M&A opportunity to pique the interest of the insurance market in 2021. Nor indeed, given that the collapse of the Aon-Willis Towers Watson mega-merger occurred in July and Aston Lark joined up with Howden in October, did this stunted affair even take the crown as this year’s biggest or most surprising M&A development.
Read more: LV= reveals result of takeover bid
And yet the proposed takeover of the UK mutual insurer has generated significant, passionate and, to my mind, somewhat unprecedented debate across the wider profession. Market conversations and online forums alike have hosted in-depth interest and commentary from a range of contributors – reflected, if not somewhat precipitated, by the coverage this news story has received from the mainstream media as well as the insurance trade press.
Whether pre or post the membership voting process, those voices which expressed at first their trepidation and concern, and later their relief at the way the vote went shared a variety of descriptors when it came to describing the deal. ‘Corporate claptrap’, ‘unmitigated greed’ were among the comments written alongside allegations that private equity firms ‘have a history of stripping assets, raising prices and slashing jobs’.
Crucial to note is that the negative assertions being lobbed were at the private equity market generally and not at Bain Capital specifically. The fact that unanimously negative words, phrases and accusations have become common parlance with regards to private equity deals and opportunities is a wake-up call to those with a stake in the insurance industry. There’s plenty of them. A recent report from S&P Global noted that private equity’s appetite for insurance sector investment hit $19.28 billion (approx. £14.58 billion) in the year to August 2021.
The couched terms used to decry the Bain Capital offer say a lot more about the reputation of private equity than the vote itself. After all, the breakdown of the votes revealed a turnout of only around 15% of LV=’s 1.16 million members - 10% of whom voted in favour of the proposed acquisition while 5% voted against. It seems that it is a vocal minority who consider private equity the villain of the alternative investment class - but they are vocal and they should not be ignored.
Going back to my roots of studying international business, I know that traditional concerns about private equity have centred around the dilution of ownership stakes and the loss of management control as well as unease over negotiation-based pricing. Nowadays, a lot of the arguments against this investment platform have evolved to include more abstract (though no less critical) considerations, including ESG, diversity and inclusion, and company culture.
From the statements of government figures, reactionary articles and online comments surrounding the LV= deal, it is clear that private equity has the reputation of being fundamentally incompatible with such principles. The issue that faces the sector now is not how these firms obtained this reputation, or even whether it has historically been a reasonable accusation, but rather how they plan to change that mindset.
First and foremost that means these firms getting to grips with their internal machinations and ensuring they are up to scratch with what the market expects from financial sector companies. And then it means changing the dialogue. Simply refuting these accusations isn’t going to wash with a market that has a better understanding of customer expectations, the role of governance and the future of financial services than perhaps ever before in light of the COVID crisis.
The best business case for private equity can only be made by those who have availed of its services. In conversation with Insurance Business, Markerstudy’s Benny Higgins noted that his decision to join the group was aided in part by the ESG-agenda of Pollen Street Capital while, before the recent Howden deal, Aston Lark’s Peter Blanc consistently emphasised the support shown for the broking group’s ethos and culture by its private equity partner.
Where private equity firms have those relationships and can prove their dedication to supporting their insurance partners, they need to open up conversations with these insurers, brokers and MGAs and send out a clearer message to the market about what a strong investor relationship really looks like. Without this, they run the risk of every narrative around high-profile private equity deals playing out the same – where the fair company in distress is rescued by a corporate hero from the clutches of the private equity dragon living in the shadows sprawled across his piles of gold.
